Outlook for Consumer Spending Turns Hazy

A shopper passes a window display at Saks Fifth Avenue Thursday, April 12, 2007 in New York. The outlook for consumer spending turned hazy Thursday as warnings of weak sales ahead overshadowed better-than-expected March sales. Cooler weather in recent days has stifled sales of spring clothing. And the slowing economy, particularly the weakening housing market, could challenge shoppers in the coming months. (AP Photo/Mark Lennihan) (Mark Lennihan - AP)

NEW YORK -- Spring looks bleak for the nation's retailers. After robust sales in March, there are signs that consumers are already spending less. And a trifecta of problems _ rising gas prices, a rougher housing market and the specter of higher interest rates _ are likely to make the retail business even tougher in the months ahead.

Although many stores reported Thursday that they had surpassed expectations last month, several warned of upcoming disappointments.

Wal-Mart Stores Inc., whose customers cut back on shopping when gas prices were high last year, said April's selling environment will be tough, while Federated Department Stores Inc. said its first-quarter sales will come in at the low end of expectations. Children's Place Retail Stores Inc. said its first-quarter earnings per share would be roughly flat with last year's, missing Wall Street estimates.

The nation's retailers were clearly helped by a number of temporary factors in March. The arrival of warmer weather following an unusually cold January and February helped retailers like Wal-Mart recover from a slow start to the spring selling season. An early Easter, which occurred eight days earlier than a year ago, also boosted business, though it will depress April's results. Other winners for March included Costco Wholesale Corp., J.C. Penney Co. Inc. and teen retailer Pacific Sunwear of California Inc.

But some analysts were skeptical.

"I don't think that (March sales) is all that it is cracked up to be," said John Morris, managing director at Wachovia Securities."You do see evidence of hesitation on the part of the consumer."

The International Council of Shopping Centers-UBS same-store sales tally posted a 5.9 percent gain, exceeding estimates for 4 percent to 5 percent. Same-store sales, or sales at stores open at least a year, are the industry standard for measuring a retailer's health. Michael P. Niemira, chief economist at the ICSC, said the improving weather and earlier Easter boosted March results by 3 percentage points.

Niemira expects same-store sales growth to be no more than 1 percent this month, in part because the weather has turned cooler in recent days, stifling sales of spring clothing.

A bigger worry is how long the housing market's problems will persist. Another concern is rising gas prices _ there are predictions of $3-a-gallon gasoline by summer, which would force many consumers to cut back their discretionary spending.

Meanwhile, minutes from the Federal Reserve's most recent meeting showed the central bank is not ruling out an interest rate hike to contain inflation. Higher rates mean consumers will be paying more on their credit card balances, and they can further hurt the already weak housing market.

One of the big pillars for spending has been the solid job market. The Labor Department reported earlier this month that employers added 180,000 jobs in March; the unemployment rate slipped to 4.4 percent, matching a five-year low. But that could weaken if the housing market continues to slump, analysts said.

The latest report from the department about unemployment benefits was not encouraging. The government reported Thursday that the number of Americans filing new claims for unemployment benefits rose last week to the highest level in two months. However, the jobless claims figure is expected to show some volatility.