Wednesday, April 2, 2008

Bad economic news expected to pile up

By John Waggoner and Christine Dugas, USA TODAY
Last week's economic news wasn't good, and data released this week aren't going to be much better, economists say.
April will probably be a particularly cruel month for retailers, as the companies reveal just how weak sales are. J.C. Penney (JCP) led the way last week by slashing its first-quarter earnings forecast by a third, to 50 cents a share.

Despite soaring prices, consumers still have to buy food, gas and energy. So retailers that sell things that consumers can do without, like a new blazer or a new purse, are the ones that are likely to lose business, says Patricia Edwards, retail analyst at Wentworth Hauser and Violich.

"The stores that cater to middle-income consumers are going to be the ones that are hardest hit," Edwards says.

Home-improvement retailers such as Lowe's (LOW) are also facing a slump in sales because many families have seen their home values slip, so they're not spending much money to improve their homes unless they have to.

FIND MORE STORIES IN: Commerce Department | Lowe | NPD Group | Bear Stearns | | Mark Zandi | Nordstrom | | Neiman Marcus | Marshal Cohen | Violich | Reuters/University of Michigan | Patricia Edwards | Chicago Purchasing Managers
Even high-end retailers, such as Nordstrom (JWN) and Neiman Marcus, are feeling the pinch. Middle-income consumers had been upgrading their shopping and buying more affordable luxury items. "They frankly had a bad case of affluenza and now the bill is due," Edwards says.

Consumer spending gained 0.1% in February, the smallest since September 2006, the Commerce Department said Friday.

And consumer confidence, as measured by the Reuters/University of Michigan survey, slumped to the lowest in 16 years in March.

Many of this week's reports reflect economic activity in March, and economists are bracing for bad news. "You had rising gas prices, a caving stock market, weak housing, (the collapse of investment bank) Bear Stearns. … March was not a good month," says Mark Zandi, chief economist for Reports out this week:

•The Chicago Purchasing Managers index, out today, will probably remain below 50 — a warning sign of recession.

•March new vehicle sales, out Tuesday, should show a 13.3% decrease, to 1.33 million units, from March 2007, says.

•Payroll employment, out Friday, should show a loss of 75,000 jobs in March. Excluding striking workers, the number falls to 35,000, Zandi says. He expects the unemployment rate to rise to 5% from 4.8% in February. The closely watched report is a key measure of how the economy is faring.

Despite the widespread gloom, the fact that consumers are tightening spending may be a good sign, some experts say. When there is a downturn, consumers are the last segment to react to it. "We could very well be closer to the bottom of the pit than we think," says Marshal Cohen, chief retail analyst at NPD Group.

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