Sales at U.S. retailers dropped 0.4%, the eighth monthly decline in the last 10 months, following a revised 1.3% drop in March that was larger than previously estimated.  Excluding auto dealers, sales fell 0.5%

Economists had expected an increase of 0.5% to 1.0%.  Since July, retail sales have shown increases only in January and February, and those were attributed to post-holiday sales.

The disappointing numbers indicate surging unemployment and the worst housing market in decades could temper consumers’ appetite for spending for years, analysts said. As long as consumer spending is muted, which accounts for about 70% of all economic activity, any recovery from the worst recession in over 50 years is likely to be slow and difficult.

“These numbers are certainly discouraging, a bit disheartening,” David Resler, chief economist at Nomura Securities (ADR NYSE: NMR) in New York, told Reuters.

The news sent U.S. stock index futures reeling to steep losses in New York trading, while government bond prices enjoyed their biggest gains in weeks.
There can be little doubt that soaring unemployment is curtailing consumer spending. Unemployed workers naturally cut back on purchases and recent statistics suggest those that are still working are increasing their savings rate.

Despite the fact that payrolls fell by only 539,000 workers in April, the smallest drop since October, the jobless rate climbed to 8.9%, the highest level since 1983. Economists surveyed this month by Bloomberg predicted the jobless rate would average 9.6% in 2010.

The same survey also showed consumer spending will be unchanged this quarter after rising 2.2% during the first three months of the year. Last month, economists had forecast spending would fall at a 0.5% annual pace in the second quarter.

“The second quarter is going to be tough,” Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in a Bloomberg Television interview. “Consumers are losing their jobs, concerned about losing their jobs and losing wealth.”

Retail sales fell even as consumer confidence started to rebound. According to last month’s report by the Conference Board, a New York-based private research group, consumer sentiment jumped in April by the most since 2005.

Falling demand at electronics, furniture, clothing and grocery stores led the decline in sales.

Gas stations also reported falling receipts in April, even though fuel prices climbed, indicating Americans may be cutting back on driving just as the U.S. enters the usually busy summer months.

Imported petroleum prices were up 15.4% in April – the largest monthly rise since a 17% increase in March 2002 – after February and March figures were revised upwards to 5.3% and 7.9% respectively.

Sales at car dealers were among the few retailers to show an increase last month. Auto sales gained 0.2% after falling 2% in March.

Counter to an industry report last week, the government’s data said sales at clothing retailers decreased 0.5%.

According to last week’s report from the International Council of Shopping Centers, the New York-based trade group that measures sales at about 40 retail chains, April same-store sales rose 0.7%, the first gain since September.

Wal-Mart Stores Inc. (NYSE: WMT), the world’s largest retailer, said sales at U.S. stores open at least a year rose 5%. Other retailers that said first-quarter earnings exceeded their forecasts included Kohl’s Corp. (NYSE: KSS) and BJ’s Wholesale Club Inc. (NYSE: BJ).

Those reports had raised hopes that shoppers are returning to stores. But yesterday’s report had retailers preaching patience.

“We’re still working our way through the slowdown,” Mike Niemira, chief economist at the ICSC, told Bloomberg. “I think it will get better as the year progresses. The month of May will still be tough and I suspect by the summer that things will be a little broader in terms of the improvement.”

Source:  Plummeting Retail Sales in April Bury Economic “Green Shoots”

• With inflation easing, China has lifted temporary inflation controls on key commodities such as liquefied petroleum gas, power-station coal, grains and cooking oil. Ten months ago, China was facing inflation at a 12-year high, Bloomberg reported. Now it’s slowed to the weakest pace in nearly two years.

• India’s rupee slid 19.2% in 2008, its worst annual performance since 1991, and the second-worst among the 10 most-active Asian currencies excluding Japan. “It has been ecstasy to agony for the rupee this year,” K.V. Mallik, treasurer at state-owned UCO Bank, told Bloomberg. “The outlook isn’t any better as it appears far from certain as to when the financial markets will stabilize. I expect the rupee to be under pressure in the next few months.”

• Rates on 30-year mortgages fell to 5.1% this week, down from the previous record of 5.14% set last week, Freddie Mac reported. Mortgage rates have plunged by about 1.3 percentage points since late October.

• Online holiday sales fell 3% from last year, marking the first decline in online spending since comScore Inc started tracking online sales in 2001, Reuters reported. Online spending totaled $25.5 billion between Nov. 1 and Dec. 23.

• UBS AG (UBS) the Swiss banking giant struggling to rebuild its balance sheet after taking $49 billion in losses form writedowns, has sold its stake in Bank of China, Reuters reported. UBS said it offloaded about 3.4 billion Bank of China H-shares through a discounted placing for at a profit of “a few hundred million dollars.” The bank had paid $500 million for a 1.6% stake in Bank of China in 2005.

Source: Global Investing Roundups Friday, January 2nd, 2009

• An economist for Barclays Capital (ADR:BCS) estimates Japan’s economy will shrink at an annual pace of 12.1% this quarter, nearly a three-fold negative jump from the rate previously predicted. “Given the speed and the length of the contraction, this recession could be the most severe in the postwar era,” Barclays’ chief Japan economist Kyohei Morita said, Bloomberg reported. “We expect negative growth will continue for a fifth straight quarter to the April-June period of 2009.”

• U.S. holiday season shopping was the worst since at least 1970, with bottom lines plagued by low demand, heavy discounting and unfriendly weather, the International Council of Shopping Centers (ICSC) said yesterday (Tuesday). ICSC’s tally runs up to December 27, and its chief economist, Michael Niemira isn’t holding out for a miracle turnaround in the remaining days, Reuters reported.

• American Greetings Corp. (AM) said it will buy privately held rival Recycled Paper Greetings in a deal that includes restructuring Recycled Paper Greetings’ debt under a Chapter 11 reorganization process. American Greetings Chief Executive Officer Zev Weiss acknowledged his company was attracted to RPG’s witty, funny and fresh content, according to a news release.

• Consumer confidence hit an all-time low in December, with the Conference Board’s Consumer Confidence Index dropping to 38 for the month from a revised 44.7 in November. Rising layoffs and the deteriorating housing market were the biggest reasons for the decline.

• The Chinese government more than doubled the size of a bailout for China Eastern Airlines Corp. Ltd. (ADR: CEA), just weeks after announcing a plan to pump $440 million (3 billion yuan) into the carrier, the Financial Times reported. China Eastern said it would now receive more than 900 million (7 billion yuan) through a private placement of Hong Kong and Shanghai-listed shares to its state-owned parent company.

• Ukraine yesterday (Tuesday) paid in full for natural-gas imports from Russia for November and has made an advance payment for supplies in December after OAO Gazprom, Russia’s state-owned oil monopoly, threatened to cut off supplies to the country. The Ukrainian government instructed two state-run banks to provide the country’s energy company NAK Naftogaz Ukrainy with the funds, a day before a deadline, Bloomberg reported.

Source: Global Investment News Roundup Wednesday, December 31st, 2008

The Fed extended the lives of recently initiated programs (lending facilities for investment firms, for instance) and is exploring additional moves (like Treasury purchases) aimed at reviving the credit markets.  Bernanke believes more needs to be done to slow the pace of foreclosures, especially since they jumped another 10% in September.

Meanwhile, the U.S. Treasury Department is working on a plan to rejuvenate the housing market by slashing mortgage rates to 4.5% on new purchases.  Experts say that at some point these stimuli must take hold, but that’s not necessarily true.

This week’s economic calendar is highlighted by two late-week releases that are sure to garner much analysis.  The producer price index (PPI) brings another look into the inflation picture, though the dramatic decline in energy prices may renew “premature” talks of deflation.  And November retail sales should offer few positive surprises for the holiday season.

Are there any 12-step programs for overcoming “gloom and doom?”

Market Matters

Black Friday has passed. And so has Cyber Monday (the Monday after Thanksgiving when online shopping begins in earnest).  So let the analysis begin.

While retailers continued to cry “gloom and doom,” the so-called experts did not appear to be quite as pessimistic.  According to National Retail Federation, holiday sales will climb by 2.2% from last year’s levels.  Research firm ShopperTrak claimed that sales on Black Friday rose by 3%, and ComScore Inc. (SCOR) said Monday’s online activity soared by 15% from 2007. Toys “R” Us Inc. execs “were definitely pleased with sales” during the initial holiday shopping weekend, and Internet data collector, Hitwise, revealed that web traffic increased by 21% at Amazon.com Inc. (AMZN).

While November sales remained bleak (see below), analysts point out Thanksgiving came late in the month (Nov. 27) and Cyber Monday actually fell in December.  The optimists (rare as they are) are hopeful holiday activity may be skewed with December faring far better than November.

Automakers returned to Capitol Hill. But for “Begging for a Bailout II,” the “Big Three” CEOs were smart enough leave their corporate jets at home and arrive in hybrid sedans.  Maybe next time they can carpool. But there’s a problem: Combined, the Big Three are this time are requesting $34 billion in loans, which is $9 billion more than they’d been lobbying for all along. Ford Motor Co. (F) implied its situation may be less dire and a mere $9 billion standby line of credit would suffice (assuming the others don’t fail).  The execs also expressed a willingness to operate under a federal oversight board, and even the unions offered concessions regarding health plans and the jobs bank.  While some politicos used scare tactics to predict even greater economic hardships should relief not be granted, others remained skeptical of the unlimited bailouts.  Mostly, they chose to grandstand and politicize the tragic times to win support at home (as if their constituents even watch C-SPAN).  Stay tuned…

In other corporate news, Goldman Sachs Group Inc. (GS) may be forging more into the banking world as it considers launching an Internet operation to increase its deposit base.  Meanwhile, analysts predict its fourth quarter loss could skyrocket to $2 billion.  Beezer Homes USA Inc. (BZH) and Blackberry-maker Research in Motion Inc. (RIMM) both lowered their quarterly outlooks and AT&T Inc. (T) became the latest domestic giant to announce layoffs.  While General Electric Co. (GE) believes its earnings will be weaker than initially expected, the company plans to maintain its dividend and solid commitment to shareholders.  Merrill Lynch & Co. Inc. (MER) shareholders approved its sale to Bank of America Corp. (BAC), though total valuation plunged to $20 billion (from $50 billion at announcement) as a result of the stock market decline.

Oil continued its never-ending decline below the $41 a barrel level, a point not seen in four years, while gas fell below $1.80 a gallon nationally. While winter weather generally means higher energy prices, the economic doldrums have more than offset the traditional trend.

Treasury yields plunged to historic lows on speculation that the Fed may purchase government securities to support the credit markets (as well as the ongoing “flight-to-quality” moves).  Stocks resumed their overall bearish ways on dramatic volatility, as investors grew more fearful about the economy before totally disregarding the awful unemployment data (see below) and staging a late-week “illogical” rally.  Then again, since when have markets been considered logical?

Economically Speaking

In what could one of the worst kept secrets of the year, the National Bureau of Economic Research (NBER) revealed the domestic economy has been in a recession since December 2007.  In the post-World War II era, the average length of recession has been 11 months, with the downturns of 1973-74 and 1980-81 lasting 16 months.

And the current recession will likely surpass the norm.  As the data gets weaker with each passing release, most economists expect this recession to last beyond the next four months and to set a new duration record in post-World War II times.

Then again, each new month means we are getting closer to the end; additionally, equity markets typically serve as leading indicators and begin to rebound months before a recovery starts – meaning we’ll see a bull market get under way while the economy is still in the depths of recession.

The weekly releases revealed that any pending rebound should remain on the back burner for some time.  In November, the unemployment rate jumped to 6.7% as the U.S. economy lost more than 500,000 jobs, the largest monthly decline in 34 years.  In the last three months alone, more than 1.2 million individuals have moved into the ranks of the unemployed.

November represented the 11th straight month of labor contraction.  Both the manufacturing and services sectors continued to struggle according to Institute for Supply Management and factory orders plummeted by the largest amount in eight years.  Retailers reported weak same-store sales numbers, with only Wal-Mart benefiting from the dire times.  Even Costco Wholesale Corp. (COST) experienced a steeper than expected decline.   And of course, dismal auto sales brought more ammunition to those Congressional hearings as General Motors Corp. (GM) (-41%) and Ford (-31%) were joined by Honda Motor Corp. (ADR: HMC) (-32%) and Toyota Motor Corp. (ADR: TM) (-34%) in the “if misery loves company” category.  Meanwhile, Bernanke and friends are hard at work dreaming up creative ways to shore up the economy, particularly after the Beige Book reported softer activity across the country.

Weekly Economic Calendar

Source: Fed Looking at Another Rate Cut, While Treasury Has New Plan for Housing

Spending over the four-day Thanksgiving weekend rose 7.2% from a year ago to about $41 billion, according to the National Retail Federation (NRF). However, a shorter holiday shopping season and frugal shoppers could soon drive retail sales back down to their pre-holiday lows.

“Pent-up demand on electronics and clothing, plus unparalleled bargains on this season’s hottest items helped drive shopping all weekend,” said NRF President and CEO Tracy Mullin. “Holiday sales are not expected to continue at this brisk pace, but it is encouraging that Americans seem excited to go shopping again.”

The NRF continues to forecast a mild 2.2% jump in holiday sales, the smallest gain in six years.

Several details in the NRF report underscored the group’s apprehension. For instance, more than half of the 110 million holiday shoppers that braved the elements this weekend went to discount retailers like Wal-Mart Stores Inc. (WMT). Shoppers also took advantage of so-called “door buster” sales that offered products at extraordinary discounts to early morning customers.

More than 23% of the 73.6 million shoppers that hit stores Friday were in the door by 5 a.m. More than half, 57.6%, were at stores by 9 a.m.

Early-bird specials may have provided a nice boost to Black Friday sales, but offering goods at such cheap prices could backfire by marginalizing profits.

“You’re looking at discounts of 50% to 70% off,” Matthew Katz, managing director in the retail practice of advisory and restructuring firm Alix Partners, told the New York Times. “You have to sell two to three times as much to break even.”

Retailers cannot continue to offer shoppers such steep discounts, and consequently, will find it difficult to keep their attention. That is especially true this year, as thrifty consumers have taken a more targeted approach – swooping into stores for the things they want and retreating without taking the time to browse for additional items.

“Shoppers definitely have a mission this year,” Marshal Cohen, chief retail analyst for NPD Group, told CNN. “They are serious about finding the best deals. They are very budget conscious, they’ve done their research and then they’ll go home.”

Also, this year’s holiday shopping season is five days shorter than last year. Consumers have just 27 days to shop this year, as opposed to 32 in 2007.

Analysts will get another glance into the psyche of the American consumer tomorrow (Tuesday) as sales data emerges for “Cyber Monday,” the unofficial kickoff of the online holiday shopping season.

Initial results showed a 2% increase in online sales over Thanksgiving and Black Friday, and the NRF said it expects another 84.6 million people to take their bargain hunting online Monday. According to a Nielsen Online survey, 36% of consumers will spend half of their shopping budgets on the Web, up from 32% last year.

Internet vendors are prepared for the online rush by offering discounts of their own, as well as free shipping, to potential customers.

The NRF’s eHoliday Survey showed that nearly 84% of online retailers will offer a special promotion on Cyber Monday, up from 72% last year. Nearly 39% of online retailers plan to offer specific deals, while 33% will offer e-mail campaigns and 25% one-day sales. About 23% will offer free shipping on all purchases.

“Online retailers have been planning their Cyber Monday promotions for months and are eagerly waiting to debut these deals to shoppers,” said Scott Silverman, executive director of Shop.org, an online division of NRF. “As shoppers focus on price this holiday season, online retailers will be extremely competitive to offer the very best deals. Americans who are looking to put a dent in their holiday shopping will be able to find thousands of bargains on Cyber Monday.”

Of course that’s not to say it will be any easier for online outlets to draw a crowd. Consumers may be planning to spend a greater portion of their budgets online, but overall those budgets have shrunk.

For the first 23 days of November, holiday online spending reached $8.2 billion, a 4% decline compared to the corresponding days last year, when online sales hit $8.5 billion, according to online marketing research firm, comScore.

“There was an optimism going into the holiday season that online would weather the storm a little bit better,” Jessica Ried, associate director of research for Resource Interactive, an online-marketing consultancy told TIME magazine. “But this year in November we’ve seen the first online sales decrease ever.”

“I don’t know that this is the only prediction to go by,” Ried added, “but a dire prediction from an organization as big as comScore does give retailers pause.”

Source: Black Friday, Cyber Monday Fail to Allay Retail Anxiety

As the U.S. economy decelerates, pummeled by the aftershocks of the worldwide financial crisis, consumers have been hit from every direction: Unemployment has spiked, and will continue to rise, economy unwinds and continues to work through the aftershocks of the global credit crisis, consumers have been beset on all sides. Unemployment is up, home prices are down, and credit is hard to come by.

And although inflation is beginning to moderate somewhat – slowing to a pace of 3.7% year-over-year in October – it’s still well above the U.S. Federal Reserve’s desired target rate of 2.0%.

With rampant inflation no longer artificially propping up consumer spending figures, retail sales have really started to lose their luster. Sales figures are based on the value of goods sold – not the volume – so the recent decline commodity and energy prices will translate into a sharp decline in retail sales.

That decline will be dreadfully apparent in this year’s holiday sales, but it will also carry into 2009. The question, now, is how much worse consumer behavior will get.

“The great unknown is just how much lower can consumer spending go?” Piper Jaffray Cos. (PJC) analyst Jeff Klinefelter told Reuters. “With savings rates at historic lows and constraints on the availability of consumer credit, I just think there’s concern that the perfect storm is brewing.”

According to the Fed, a recession is already under way in the United States. Gross domestic product (GDP) shrank 0.5% in the third quarter, and the Fed predicts the economy will continue to contract in the first six months of 2009, and possibly beyond.

Tighter credit standards and lower home prices mean consumers have less of an ability to finance their purchases through debt. And even those with cash to spend are opting to save instead, as the economic outlook continues to dim. Would-be consumers are also scrambling to rebuild savings that were decimated by a bear market that has dragged the Standard & Poor’s 500 Index down more than 40% this year.

“We expect to see consumer spending to be flat before inflation,” Gus Faucher, chief U.S. economist with Moody’s Economy.com (MCO), told the Los Angles Times. That means once inflation is factored in, consumer spending will see a sharp decline in 2009, and retail sales will be left to twist in the wind.

Retail Laggards

According to a recent retail outlook report from Fitch Ratings Inc., personal consumption expenditures are projected to decline 1.6% in 2009.

A wave of consolidation and bankruptcies will spread through the retail sector as weaker chains fail and stronger brands shut down underperforming stores. Department stores and specialty stores will be hit especially hard, as consumers cut back on discretionary purchases in favor of staples.

Bankruptcies of stores such as Sharper Image Corp. (OTC: SHRPQ) and Circuit City Stores Inc. (OTC: CCTYQ) are having a negative effect on the sale of gift cards, which stores traditionally have counted on to boost sales after the holiday season. Gift card purchases are tallied when the card is redeemed, not when the card is purchased. In the past, the sale of gift cards have given New Year sales a healthy boost as gift card recipients go shopping after the holidays are over.

But consumers are wary of getting left holding onto worthless cards while bankruptcy courts decide how to divvy up assets.

For the 2007 holiday season, 70% of consumers purchased gift cards. This holiday season, just 40% of consumers are projected to go the gift card route. And that’s going to weigh down sales and profits for the 2009 first quarter.

“I think you will see a six-point drop in sales for those first three months,” C. Britt Beemer, chief executive officer of America’s Research Group and author of “The Customer Rules,” told CRM Magazine.

Troubles Beyond the Big Brick-and Mortar Stores

While the big chains are struggling and grabbing the bulk of the headlines, small business owners are barely getting by. That might not seem like a big deal if the stock market is your focus, but small-businesses are integral to the economy.

According to the Small Business Administration, businesses with less than 500 employees account for almost half of private-sector employment. A recent National Federation of Independent Business survey showed 15% of small business owners anticipate layoffs in 2009, which will put even more strain on an already weak U.S. labor market.

And small business layoffs mean slower sales for big box stores like Best Buy Co. Inc. (BBY) and Target Corp. (TGT) as another wave of unemployed workers grapple with lost income.

Online retailers are starting to feel the pinch, too. Web sales have been one of the fastest growing retail sectors for years, but popular sites such as Zappos.com Inc., the No. 1 online shoe retailer, and QVC Inc., which sells online and on television, have each announced layoffs, as well as declining sales.

Amazon.com Inc. (AMZN), the top online retailer, also is struggling. Amazon’s stock is down 55% year-to-date, and the outlook is grim.

“[Amazon is] seeing a slowdown in their business that shouldn’t really shock anybody,” Jeffrey Matthews, a general partner at hedge fund Ram Partners LP in Greenwich, Conn., told Bloomberg. “They sell books. They sell movies. They sell blenders. They don’t sell magic potions or the fountain of youth.”

Retail’s Bright Spots

There are a few retailers that – while they don’t sell magic potions or the fountain of youth – have managed to position themselves as offering more value for the money, which has allowed them to buck this downward spiral in consumer spending have managed to buck dismal consumer spending. And that focus on value will continue in 2009.

The best example of this value exception is the world’s largest retailer: Wal-Mart Stores Inc. (WMT).

“This is Wal-Mart time,” Chief Executive Officer H. Lee Scott Jr. told Wall Street analysts during an Oct. 27 presentation at company headquarters in Bentonville, Ark., BusinessWeek reported. “This is the kind of environment that Sam Walton built this company for.”

The economic slump has found Wal-Mart returning to the basic strategies that the late founder made famous. The retail titan has given up on the brand-name designer strategy of competitors such as Target and Kohl’s Corp. (KSS) to offer rock-bottom prices on hundreds of consumer staples.

That bodes well, as consumers will continue to stretch household budgets and consolidate trips to save on gas.

“It is a great time to be Wal-Mart,” Howard Davidowitz, chairman of Davidowitz & Associates, told Bloomberg News. “It sells everything you need cheap.”

Stores like Wal-Mart, that can capitalize on this new value-seeking behavior will be able to turn a profit even in this bleak retail environment. And those that can’t, will be bought out or disappear.

Source: Retail Sales to Suffer in 2009 as U.S. Consumers Curtail Spending

Editor’s Note: This is the seventh installment of our “Outlook 2009” series, which is detailing the global investing outlook for 2009.

• The world’s largest chemical company, BASF SE (ADR:BASFY), lowered its profit forecast and announced plans to halt operations at 80 factories. The Ludwigshafen-based company cited reduced orders from the auto, construction and textile industries, Bloomberg reported.

• Oil prices continue sliding, as U.S. crude fell to $53.30 a barrel yesterday (Wednesday) – the lowest price since January 2007. Oil has dropped almost two-thirds from its record $147 a barrel in July, Reuters reported.

• Mirroring the efforts of their U.S. counterparts, Chinese automakers are seeking government aid to breathe some life back into the world’s second-largest vehicle market. “Chinese automakers do need government’s help to survive the turmoil,” Zhang Xin, an analyst at Guotai Junan Securities Co. in Beijing, told Bloomberg. “There aren’t any policies yet for stimulating vehicle consumption and automakers need to shout louder to get the government to provide incentives.”

• October housing starts clocked in at the annual rate of 791,000, the lowest level since the U.S. Commerce Department began tracking them in 1959. Also, building permits last month fell 12% to the annual rate of 708,000, the lowest level since March 1975, Phoenix Business Journal reported.

• Honeywell International Inc. (HON) yesterday (Wednesday) landed a $52 million contract to supply jet engines to Italy-based Alenia Aermacchi, The Associated Press reported.  Honeywell did not disclose the number of engines being supplied or a delivery timetable.

• Federal Reserve policymakers expect the U.S. recession to last as long as a year or longer, according to edited minutes of a closed-door meeting of the Federal Open Market Committee on Oct. 28 and 29, MarketWatch reported. Fed governors and bank presidents “generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009, and agreed that the downside risks to growth had increased,” the minutes said.

• Research firm ShopperTrak predicts a record-low increase in holiday sales of 0.1%, Reuters reported. The group also says holiday traffic could decline by as much as 9.9% as shoppers stay at home and hunt for bargains online. “Currently we’re anticipating the lowest retail sales and total U.S. traffic numbers we’ve seen since we started compiling this data in 2001, Bill Martin, co-founder of ShopperTrak, said in a statement.

• BJ’s Wholesale Club Inc. (BJ) yesterday (Wednesday) reported a 24% jump in quarterly profit. BJ’s profit rose to $28.2 million, or 48 cents per share, in the quarter ended November 1, up from $22.7 million, or 35 cents per share, a year earlier.

Source: Global Investing Roundups Thursday, November 20th, 2008