Retail stocks shot ahead Tuesday morning, rising as much as 1.4 percent on an increase in consumer confidence and a modestly upbeat 2010 sales forecast, but the sector couldn’t hold on and ultimately kept less than half of its earlier gains.

This story first appeared in the January 27, 2010 issue of WWD. Subscribe Today.

The S&P Retail Index ended with a 0.6 percent, or 2.24 point, rise to 398 while the Dow Jones Industrial Average slid 2.57 points to 10,194.29. Retailers joining in on the rally included Limited Brands Inc., up 4.3 percent to $19.40; Target Corp., 2.5 percent to $52.02; Nordstrom Inc., 2.1 percent to $35.03; Macy’s Inc., 1.9 percent to $15.82, and Abercrombie & Fitch Co., 2 percent to $31.05. (For more on stocks see page 14.) Investors now turn their attention to commentary on interest rates from the Federal Reserve today.

The National Retail Federation predicted retail sales, excepting automobile sales, gas stations and restaurants, would rise 2.5 percent this year after falling 2.5 percent in 2009. And The Conference Board’s Consumer Confidence Index rose for the third straight month, advancing to 55.9 for January from 53.6 in December.

Of the confidence index’s two components, it was the Present Situation Index that made the bigger push, moving up to 25 from 20.2 last month. The Expectations Index inched ahead to 76.5 from 75.9.

“Consumers’ short-term outlook, while moderately more positive, does not suggest any significant pickup in activity in the coming months,” said Lynn Franco, director of The Conference Board Consumer Research Center.

That conclusion jibed with the takeaways from two other surveys highlighting the trade-offs consumers plan to make to right-size their savings and spending.

The ARG/UBS Consumer Mind Reader survey indicated consumers are starting to loosen their purse strings with “incremental discretionary spending, likely driven by a sense that the worst of the economic downturn is over.”

About 23 percent of survey respondents said bills and debt caused them to cut back on spending, but roughly 24.9 percent said they’d take the opportunity to purchase items on sale.

Similarly, the latest American Express Spending & Saving Tracker found consumers are setting specific goals when it comes to saving.

“On average, the general population would like to save $14,000 this year and over the next 30 days plans to sock away $1,200,” said the American Express report.

Fifty-four percent of the general population will rely on primary income as a means to achieve their financial goals, according to the report. Some also said they will pare back on small luxuries to pad savings accounts.

Brian Bethune, IHS Global Insight’s chief U.S. financial economist, cautioned there’s a possibility of a February pullback in consumer confidence since the January reading was taken before the recent stock market declines.

“Consumer spending is expected to grow at an annualized rate of 2 percent in the first quarter of 2010 — not exciting, but still respectable,” Bethune concluded.

The NRF said the U.S. economy would strengthen at a moderate pace this year, with positive contributions from exports, a turn in the inventory cycle as businesses restock and government spending.

“As we continue to see signs of improvement throughout the U.S. economy in 2010, overall sentiment will begin to lift, making way for slight increases in consumer spending,” said Rosalind Wells, the trade group’s chief economist. “While we still expect shoppers to continue to be frugal with their discretionary spending, retailers will soon be able to reap the benefits of leaner, smarter inventories and a year and a half of pent-up consumer demand.”

Wells added on a conference call with reporters that apparel sales would fare better than the overall market.

“Apparel is an easier purchase for people who are looking to spend only within the confines of their budget,” Wells said.

In the Asian stock markets, concerns about tighter lending standards at Chinese banks continued to weigh on investors and helped push the SSE Composite Index down 2.4 percent to 3,019.39 in Shanghai, while the Hang Seng Index fell 2.4 percent to 20,109.33 in Hong Kong and the Nikkei 225 dropped 1.8 percent to 10,325.28 in Tokyo.

And it looks like Japan could be headed toward more trouble. Standard & Poor’s cut the outlook on the country’s long-term credit rating to “negative” from “stable.” S&P said the Japan’s leeway in economic policy had diminished because of increased fiscal deficits and debt, persistent deflation and the prospect of sluggish economic growth. The debt watchdog continues to rate the country’s debt “AA.”


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