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Shoppers lift economy but will they keep spending?
This time, retailers seem better prepared. They’ve kept inventories lean to avoid being stuck with huge piles of marked-down products.
Jeff Landis of Chicago-based Montopoli Custom Clothiers said because business has been quiet the past few weeks, he’s decided to delay stocking up on fabric for custom suits for fall. And Geoff Stern, owner of Toy Professor, a toy store in Summit, N.J., said sales this week were down about 25 percent from a typical August week.
Until late this week, a batch of poor economic data and a gloomy outlook from the Federal Reserve set off fears that the economy might be about to slide into another recession. That threat appears to have diminished. But it’s hardly gone away.
Still overhanging the financial markets and the U.S. economy is concern that Europe’s debt crisis will spread through the U.S. financial system. Investors worry that Italy and Spain, two of Europe’s biggest economies, might be unable to pay all their debts.
If they couldn’t, big European banks that hold huge amounts of government debt would be at risk of failure. That possibility, in turn, could harm many large U.S. banks with close relationships with their European counterparts.
The mildly positive economic figures in recent days have at least given economists cause for hope. Layoffs are down. Retail sales are up. Gas prices have fallen. Employers added 117,000 jobs last month. That isn’t enough to significantly lower the unemployment rate, now at 9.1 percent. But it was more than expected and was an improvement after two dismal months for hiring.
Retail sales rose 0.5 percent last month, the Commerce Department said Friday. It was the best showing since March. The government also revised up its estimates of sales for the previous two months. Even after excluding gas station sales, which were boosted by a rise in gas prices, sales rose 0.3 percent in July.
It was the second encouraging signal for the economy in as many days. On Thursday, the Dow rocketed up 423 points after the government said the number of people applying for unemployment benefits dropped below 400,000 for the first time since April.
Consumers may feel better later this month as gas prices drop further, economists said. That would help increase their confidence. Gas prices have fallen 10 cents to $3.60 a gallon in the past week — down from nearly $4 a gallon in early May.
In addition, stock prices have rebounded slightly since the consumer sentiment survey was completed early this week, said Paul Dales, an economist at Capital Economics.
“Confidence is very unlikely to stay this low for long,” Dales said.
Most large retailers are remaining optimistic. Macy’s Inc., Kohl’s Inc. and Nordstrom Inc. have boosted their annual profit outlooks. Yet they’re also concerned about the risk that conditions will worsen.
J.C. Penney said Friday that it expects its earnings this quarter to trail Wall Street estimates.
“The tumultuous last 10 days or so haven’t given our core customer, the middle income family, any reason to be more confident,” said CEO Myron E. Ullman III.
The retail sales report is the government’s first read on consumer spending for the July-September quarter. In June, consumers cut spending for the first time in 20 months, a troubling sign.
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