For Economy, Another Thumping

Network News

X Profile
View More Activity
By Ylan Q. Mui and Howard Schneider
Washington Post Staff Writers
Friday, February 6, 2009

Retail sales fell in January for the fourth consecutive month, factory orders in December dropped for the fifth month in a row, and jobless claims last week hit a quarter-century high as the recession shows no signs of abating.

The data, released yesterday, underscored the reluctance of individuals and businesses alike to spend in the face of a gloomy economy. Depressed demand here and abroad pushed U.S. factory orders down 3.9 percent, to $362.4 billion, in December. That trend is forcing companies to slash jobs, sending new claims for unemployment benefits up to 626,000 last week. And anxious consumers, whose spending fuels the nation's economy, have cut out all but the essentials as sales dropped 1.6 percent last month. Luxury stores and clothing chains suffered the most, while discounters were a bright spot.

"It all ties into why business is so bad out there," said Howard Tubin, an analyst with RBC Capital Markets. "Until people get comfortable that they are not going to get laid off or they have found a new job, then business is going to remain pretty tough in general."

Yesterday's news did not bring much promise of comfort. Not only did new claims for unemployment benefits increase more than expected last week, but the number of people continuing to collect benefits rose to nearly 4.8 million, the highest number since record keeping began about 40 years ago. The January unemployment rate is scheduled to be released today.

Weekly claims can be volatile, as major storms or other events can affect them on a short-term basis. Still, economists have watched the number of claims rise steadily in recent months to historically elevated levels. The Talbots clothing store chain announced yesterday that it is cutting 370 corporate positions and shutting 20 stores this year. Cosmetics maker Estée Lauder said it is laying off 2,000 employees. Fortunoff Holdings, an upscale chain, slipped back into bankruptcy protection yesterday for the second time in a year. And earlier this week, Macy's said it was eliminating 7,000 jobs as part of a massive restructuring.

"The wave of layoffs is still rising, and the run of terrible payroll numbers will continue," said Ian Shepherdson, chief U.S. economist for the High Frequency Economics consulting firm.

Retailers have been particularly hard hit by the downturn. At least half a dozen national chains have announced major layoffs since the year began. They aggressively cut prices in January as they tried to get rid of excess merchandise following a brutal holiday shopping season, hurting both their profit margins and sales during what is normally a slow month.

Once high-flying luxury department stores such as Saks Fifth Avenue and Neiman Marcus watched January sales at stores open at least a year -- a key measure of a retailer's health -- plummet 24 percent from January 2008. Mid-market chains such as J.C. Penney and Kohl's escaped with double-digit sales declines, while Macy's sales fell 4.5 percent.

Clothing stores also suffered, with Gap Inc. reporting a 23 percent sales decline last month that included an 18 percent fall off at its namesake stores and a 34 percent drop at its Old Navy division from January 2008. Limited Brands, which owns Victoria's Secret and Bath & Body Works, was down 9 percent. Sales at teen retailers such as Abercrombie & Fitch and Pacific Sunwear declined by double digits.

"January merely represents the icing on a cake that had already been baked in December," said Todd Slater, managing director at Lazard Capital Markets. Still, some retailers have benefited as consumers worried about their jobs and budgets make price a priority. Wal-Mart yesterday said January sales at established stores exceeded its expectations, increasing 2.1 percent from January 2008 at its U.S. locations and Sam's Club division. The gain was fueled by shoppers stocking up on essential categories such as grocery and health and wellness products, the company said.

"Clearly, our stores are performing very well, as we continue to emphasize customer service and innovative merchandise," Wal-Mart Vice Chairman Eduardo Castro-Wright said.

That trend also helped boost the performance of drug stores, where sales last month rose 0.6 percent, according to an analysis by the International Council of Shopping Centers, a trade group. Sales at established Rite Aid stores grew 1 percent in January, while Walgreen reported a 0.4 percent gain. The companies had released their results previously.

Retail experts said that consumers are unlikely to begin indulging in discretionary purchases until the economy stabilizes, and that prospect seems increasingly distant. The National Retail Federation, a trade group, said yesterday that the economic stimulus plan being debated by the Senate does not go far enough to stimulate consumer spending and called for a series of national sales tax holidays. The group has forecast a modest uptick in spending toward the end of the year, but many retailers are slashing inventories and closing stores for fear of a worst-case scenario.

"Hope is not an investment process," said John Aiken, head of equity research for Majestic Research. "Just because it's bad and people want it to get better, doesn't mean it's going to."


© 2009 The Washington Post Company

Network News

X My Profile
View More Activity