- The Washington Times - Friday, November 7, 2008

The worst month for retailers in 35 years triggered another plunge on Wall Street on Thursday, with the Dow Jones Industrial Average plummeting nearly 450 points to complete a two-day loss of nearly 1,000 points - the biggest since 1987.

The International Council of Shopping Centers reported that a “simply awful” month for sales in October is prompting it to forecast growth of only 1 percent in the critical Christmas selling season, in what would be the most dismal end-of-year for retailers in decades. Most stores make about a quarter of their yearly sales around Christmas.

While consumers have already pulled back sharply, a steady loss of jobs threatens to cause an even greater falloff of spending in future months. The Labor Department reported that the number of people continuing to draw unemployment benefits jumped to a 25-year high, increasing by 122,000 to 3.84 million in late October. That was the highest level since late February 1983, when the economy was being buffeted by a protracted recession.

The sharp rise in unemployment raised fears that a key jobs report expected Friday will show a devastating loss of jobs. On Thursday, Mattel and Fidelity Investments announced layoffs of more than 1,000 each, citing the nose dive in the economy.

“I think everybody kind of simultaneously — the consumers and businesses — is tightening belts so that’s triggering a reasonably precipitous slowdown that’s widespread,” said Ed Hyland, global investment specialist at J.P. Morgan’s Private Bank. “This is something that we haven’t really seen, this level of this rapid and significant pullback both in the market and the economy.”

The Dow fell 443 points or nearly 5 percent to 8,696, while the Standard & Poor’s 500 Index dropped more than 5 percent and is down more than 40 percent in the past year.

“The great unknown is just how much lower can consumer spending go?” said Piper Jaffray analyst Jeff Klinefelter. “With savings rates at historic lows and constraints on the availability of consumer credit, I just think there’s concern that the perfect storm is brewing.”

Wal-Mart Stores Inc. stood out as one of the few bright spots. It posted a better-than-expected 2.4 percent rise in sales at U.S. stores open at least a year. Wal-Mart’s results were a sharp contrast to other discounters, like Target Corp. and Costco Wholesale Corp., which reported larger-than-expected same-store sales drops. Across the sector, department store chains like Nordstrom Inc. and specialty clothing retailers like Abercrombie & Fitch were among the hardest hit.

Shoppers have pared purchases of discretionary items like clothes or computers and in some cases are carefully planning when they buy the most basic necessities, like baby formula.

Markets were also shaken by Cisco reporting a steep drop in orders in October. Thursday’s rout follows a drop of more than 5 percent Wednesday that saw the Dow plunge nearly 500 points as investors fretted that weak readings on employment and downcast profit forecasts and job cuts signaled broad troubles.

Still, the market’s two-day slide follows an enormous run-up since last week, so some pullback was expected, analysts said. Through the six sessions that ended Tuesday, the benchmark S&P 500 surged 18.3 percent.

Richard Campagna, chief investment officer at Provident Investment Counsel in Pasadena, Calif., said the market’s pullback wasn’t surprising given the enormity of the recent run-up. He said the weak economic readings shouldn’t come as a surprise given a freeze in credit markets that has disrupted lending and other economic activity since September.

Light volume and overall fear among investors is exacerbating the market’s volatility, Mr. Campagna said.

“Some people are pushing this market around more than they should be out of fear,” he said. Many everyday investors are sitting on the sidelines, he said. “Everyone has been shell-shocked with the moves in the market.”

This article is based in part on wire service reports.