STOCKS, CONFIDENCE UP, BUT FASHION ISSUES DON’T SHARE IN SURGE
Byline: Jennifer Weitzman
NEW YORK — Consumer confidence roared back in March, following five straight months of steady decreases, as perceptions of an improving labor market overshadowed recent drops in the stock market and a rash of corporate layoffs.
Retailer and apparel executives should cheer, some economists and industry watchdogs argued, as consumers appear to no longer expect a recession.
Whether confidence will lead to consumption remains to be seen, but investors found the news something to celebrate as they sent the Dow Jones Industrial Average up 260 points, or 2.7 percent, to 9947.54. Similarly, the Nasdaq jumped 2.8 percent to 1972.24 and the Standard & Poor’s 500 up 2.6 percent to 1182.18.
Suddenly viewed as a better value in light of the decline of the tech stocks, apparel and retail stocks have been affected only mildly by Wall Street’s recent convulsions. Fittingly, they were generally left out in the unseasonal New York cold Tuesday as the market went through its run-up.
However, the good news for stocks didn’t reach The Warnaco Group, which lost over half of its value a day after postponing its earnings report until Thursday and warning that its net loss for the recently concluded fiscal year would be “substantially greater” than the 30 cents per share previously forecasted.
Similarly, I.C. Isaacs & Co. indefinitely postponed its fourth-quarter conference call, originally scheduled for today, just minutes before the markets closed. Its shares fell 6 cents to 50 cents.
Fears about the economy have subsided, as consumers have come to the realization that the stock market rout and declines in corporate profits have not been especially severe, Moody’s Investors Services economist John Lonski said in explaining the bounce back. “Consumers are not down in the dumps because of the slump in stock prices and diminished profits,” Lonski said, adding most people are not worried about losing their jobs.
The Consumer Confidence Index, a key indicator of consumers’ attitudes toward how the economy is performing, climbed 8 points in March to 117, up from a revised 109.2 in February.
“The rebound in consumer confidence was triggered by an improvement in the economic outlook for the next six months and employment prospects,” said Lynn Franco, director of The Conference Board’s Consumer Research Center. “The recent weakness in the stock market has done little to dampen either consumers’ assessment of present economic conditions or future expectations.”
Consumer expectations are substantially more optimistic than in February, as the biggest improvement in the monthly report came in its reading of consumer expectations for the next six months. The Expectations Index, a measure of consumer sentiment for the short term that constitutes one-half of the overall index, rose 18.2 percent to 83.6 in March from 70.7 in February.
Consumers expecting an improvement in business conditions increased to 15.4 percent from 11.3 percent. Those anticipating conditions to worsen decreased to 13.6 percent from 17.6 percent.
The employment outlook was also more favorable. Currently, 12.2 percent of consumers expect more jobs to become available, up from 10.8 percent. Those expecting fewer jobs to become available declined from 2.5 percent to 20.1 percent. Income expectations, however, did not improve. Only 23.2 percent of consumers look for their paychecks to improve, down from 23.9 percent.
The Present Situation Index, which measures current consumer sentiment and represents the other half of the overall index, also improved, but less dramatically — up .06 percent to 167.2 from 167.1. The percentage of consumers who rate current business conditions as “good” rose to 32.9 percent from 31.6 percent. Still, those rating conditions as “bad” also rose to 10.8 percent from 10.6 percent. And consumers claiming jobs are “hard to get” rose to 12.7 percent from 12.4 percent, but those reporting jobs are plentiful increased to 43.7 percent from 43.3 percent.
Sung Won Sohn, chief economist at Wells Fargo & Co. agreed. “Consumers are feeling much better about the future than they did in the past,” he said. “Economic reality has not been all that bad. We have labor shortages from sea to shining sea as well as real income up, interest rates that are falling and a stock market that is, hopefully, in the process of bottoming out.”
Over the past five months, consumers were scared more of the perception of what could happen, even though the economic reality was fairly healthy, Sohn said. Now, consumers realize the perception is much worse than reality.
To some economists, apparel sales, already hammered by an especially brutal winter, should be on the mend this spring, so long as the job market holds together and warmer weather lures shoppers, more apt to part with some extra dollars, into stores. In addition, a supposed return to more dressy attire at work could provide a boost.
However, some said happy days for retailers are not here yet as consumers remain cautious because they feel less wealthy and would be more likely to scale back discretionary purchases such as apparel.
Among the apparel and retail stocks sharing in Wall Street’s increases were two companies that last week lost out on the bidding for the Bugle Boy trademark. Having reported lower earnings that beat estimates, Perry Ellis International shares rose 12.1 percent to close at $6.38, while Tropical Sportswear rose 11 percent to $19. LVMH Moet Hennessy Louis Vuitton logged a 7 percent increase to close at $10.50. Among retailers, Delia’s rose 10.6 percent to $3.24, while a fairly long list of major stores had increases in the range of 3 percent to 4 percent. Among these were Sears (up 3.8 percent to $36.01), J. Jill (up 3.7 percent to $15.63), Pacific Sunwear (up 3.6 percent to $32.44), Target (up 3.1 percent to $36.88), Kmart (up 3 percent to $9.30) and Neiman Marcus Group (up 3 percent to $33.62).
The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The index compares results with its base year of 1985, when it stood at 100.