“Corporate earnings from big apparel retailers have been
shockingly bad,” say economists at BNP Paribas. Some have reported
inventory backups that suggest demand is slowing, a threat to fourth-quarter
economic output after a third quarter that turned out to be better than
initially estimated. The government on Tuesday revised up its
third-quarter GDP reading, thanks to rising stockpiles at retailers and
elsewhere. That inventory build may wind up hurting fourth-quarter output,
however, when those stocks are drawn down. “The anticipated inventory drag has
only been postponed,” said Nariman Behravesh, chief economist at IHS
Retailers’ warnings have coincided with weak retail
sales in the government’s official figures, confirming a broader slowdown
in the sector despite cheap gasoline, strong job growth and early signs of
faster wage growth. Retail sales have largely stalled in recent months,
extending the lackluster streak this year. Americans have curbed discretionary
spending lately on items like electronics and appliances, and in its most
recent report the Commerce Department said shoppers more than halved their
spending at retailers in November from a year earlier.
That pullback is showing up in corporate earnings reports
and it’s prompting downbeat forecasts for the holiday quarter. Department
stores including Nordstrom Inc. and Macy’s Inc. warned this
month of an unexpected slowdown in spending at their stores, while specialty
shops including Dick’s Sporting Goods Inc. and Lululemon Inc. reported
worrisome inventory levels as shoppers take less from the shelves. Retailers
across the spectrum have been stung by lower spending, from luxury jeweler Tiffany
& Co. to Wal-Mart Stores Inc.
The results underscore the challenges of the economic expansion,
which has been plagued by weak demand and slow wage growth for most Americans.
Retailers have trained shoppers to wait for steep discounts,
luring them in for bargains during the holiday period. That has kept retailers
in a promotional mode to drive traffic and clear shelves, at the expense of
their own profit margins. If retailers do pull off brisk sales, they’ll need to
replenish stocks in the first quarter. That could provide a bump to GDP early
in the year.
here to access the full article on The Wall Street Journal.