Where’s the Bounce? Retail Still Sluggish Despite Iraq Success

Military victory in Iraq hasn’t yet brought shoppers into stores, but hopes are high that it will trigger the beginning of an economic recovery.

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Walter Loeb

Photo By WWD Staff

Deborah Weinswig

Photo By WWD Staff

NEW YORK — Military victory in Iraq hasn’t yet brought shoppers into stores, but hopes are high that it will trigger a series of events that will spell the beginning of economic recovery.

Results at retail last week failed to deliver the late-Easter boost many had hoped for, reinforcing the sense that any improvements in sales results are likely to take place during the second half.

Smith Barney Citigroup analyst Deborah Weinswig indicated on Monday that broadline retailers won’t be getting much short-term solace from their stock prices either. The analyst downgraded the sector to "underweight" from "marketweight" Monday based on a tenuous risk-reward proposition, a lack of earnings drivers and the seasonality of retail stocks. Sales this month, she said, may come up short and pressure the broadline sector.

Yet, even with retail still lacking in velocity, several economists see signs of hope for later in the year. A pickup in the employment market could be spurred by increased capital expenditures and hiring now that the uncertainties of war have passed. That would put more dollars into the hands of consumers and, in turn, into retailers’ dieting cash registers.

Higher oil prices, stock market fluctuations, flagging confidence and a lack of job security have also kept consumers’ wallets sealed, but they could be poised to reverse course.

Moody’s Investors Service economist John Lonski, noted, "The disappointing pace of retail sales reminds us there was more weighing on consumer spending than Iraq-related uncertainties. Without the return of employment growth it will be nearly impossible to realize a faster rate of consumer spending growth."

Nonfarm payroll employment declined by 108,000 in March, while the unemployment rate stood unchanged at 5.8 percent, according to the U.S. Department of Labor. Employment last month continued to decline in manufacturing, retail trade and transportation.

Lonski noted it’s possible that employment will decline for the third straight month in April, but pick up some in May.

April, with the benefit of a later Easter this year, was expected to carry the load of March’s holiday-deprived shortfall, but reports from major stores on Monday indicated it hasn’t been able to so far. Excuses also are harder to come by than they were last month as the impact of the war and the so-called "CNN effect" diminish.
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