U.S. retailers announce weakest January results in nearly four decades

NEW YORK -- The nation's retailers delivered more evidence of a stumbling economy Thursday, as merchants reported their weakest January performance in nearly four decades, extending a malaise that has deepened since the holiday shopping season.

The sales figures made it clear that consumers wrestling with high gas and food prices, a slumping housing market, an escalating credit crisis and a weakening job market retrenched further, buying mostly necessities even when redeeming their holiday gift cards. The disappointments cut across all sectors including discounters like Wal-Mart Stores Inc., teen retailers including Pacific Sunwear of California Inc. and mall-based apparel chain Limited Brands Inc. Even affluent shoppers are pulling back, hurting stores like Nordstrom Inc.

"Clearly, this is a reflection of a very difficult environment for the consumer," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass. "It looks like consumer spending is stalling."

Nonetheless, shares of a number of retailers rose as many either backed their earnings forecast or even raised guidance, signaling that they were able to control their inventories. Hot Topic Inc. and Wal-Mart stuck with their earnings forecast, while Pacific Sunwear, Wet Seal and Gap Inc. raised their profit outlooks despite sales drops.

The UBS-International Council of Shopping Centers preliminary sales tally of 43 retailers rose 0.5 percent in January, well below the original 1.5 percent forecast. The results followed an anemic 0.7 pace in December and were below last year's same-store sales average gain of 2.1 percent. Michael P. Niemira, chief economist, said January's performance was the weakest ever, according to records that go back to 1970. It is based on same-store sales, or sales at stores open at least a year.

Thursday's results extended a streak of news that showed more signs of consumer strain. Consumers' spending accounts for two-thirds of economic activity, and their outlays appear to have stalled from an already slowing pace seen over the past year. Wal-Mart noted in its release Thursday that gift card redemptions were below expectations and that customers appear to be holding gift cards longer and "using them more often for food and consumables rather than discretionary purchases."

While consumers have had to contend with rising gas and food prices and a slumping housing market, there are signs that the job market is becoming a concern as well. On Friday, the Labor Department reported that U.S. employers sliced payrolls by 17,000, the first decline in more than four years. And on Thursday, the department said jobless claims fell last week by 22,000, but the decline was smaller than expected.

And while investors are hoping the Federal Reserve can avert a recession with a series of rate cuts, some economists say the moves may be too little, too late. Analysts also say that while the government's proposed economic stimulus package, which offers rebate checks for more than 100 million Americans, could help reignite spending, the lift would only be temporary.

As Perkins said, if the job market continues to deteriorate, "all bets are off."