Drop in Retail Sales Matches Paulson's Dour Predictions
By David Cho and Ylan Q. Mui
Washington Post Staff Writers
Friday, April 11, 2008; D02
Treasury Secretary Henry M. Paulson Jr. said yesterday that the U.S. economy has "turned down sharply" and may weaken further.
His gloomy comments were reflected in new retail sales figures that were released at nearly the same time as a speech he delivered in Washington. March sales at stores open at least a year were down half a percentage point from the comparable period last year for about 40 chain retailers reporting results yesterday, according to the International Council of Shopping Centers. It was the biggest drop in March since 1995.
Department stores were particularly hard hit. Dillard's, J.C. Penney and Kohl's all posted double-digit declines. Upscale retailers were not immune: Nordstrom fell by 9 percent, and Saks dipped nearly 3 percent.
"The reality is that shoppers are stepping up their plans to cut back spending," said Frank Badillo, senior economist at consulting firm TNS Retail Forward. "So we'll likely see more of these weak retail numbers in the coming months."
Retailers blamed the early arrival of Easter and cold weather for dampening consumers' appetite for spring merchandise, particularly apparel.
The bright spot last month was Wal-Mart. It posted growth of nearly 1 percent in same-store sales, which measures sales at stores open at least a year, excluding fuel sales, and raised its first-quarter earnings expectations. The world's largest retailer said the growth was driven by sales of groceries, health and wellness products, and entertainment.
"Customers continued to turn to Wal-Mart for price leadership throughout the store, and they continued to see a better shopping experience," said Eduardo Castro-Wright, head of Wal-Mart's U.S. stores. Wal-Mart's shares rose nearly 1 percent on the New York Stock Exchange, to close at $54.66.
Warehouse clubs Costco Wholesale and BJ's Wholesale also had better sales figures as shoppers looked for discounts on basic items and flocked to the cheaper gas offered at such stores.
Other chains were not as fortunate. Gap's same-store sales dropped 18 percent last month, more than double what Wall Street had expected.
Meanwhile, Target reported that March same-store sales fell 4 percent.
Stimulus checks from the federal government, expected to be mailed starting next month, should help consumer spending, Paulson said in his speech to the Council of Institutional Investors. But, he said, "there is no doubt we're having a tough quarter, that the economy has turned down sharply."
The weakening economy underscores the need to implement recommendations the President's Working Group made last month, Federal Reserve Chairman Ben S. Bernanke said yesterday.
Those proposals call for changes to nearly every segment of the credit markets and mortgage industry, including the creation of national standards for mortgage brokers, tighter oversight of credit-rating firms and tougher capital requirements for financial firms making risky investments.
"Many of the necessary changes that have been identified, including increasing transparency, improving risk management and attaining better coordination among regulators could provide important support to the process of normalizing our financial markets," Bernanke said in a speech to the World Affairs Council of Greater Richmond. "We do not have the luxury of waiting for markets to stabilize before we think about the future."
The President's Working Group is chaired by Paulson and includes the leaders of the Fed, the Securities and Exchange Commission and Commodity Futures Trading Commission.
"These recommendations should moderate the likelihood and severity of future financial shocks and enable market participants to better withstand shocks when they occur," Bernanke added.
In answering a question after his prepared remarks, Bernanke acknowledged that the "financial distress we're seeing now is among the most severe episodes of the post-war era." But he added that it is not "remotely like" the Great Depression itself.