U.S. Stocks Drop on Retail, Home Price Concern; Target Falls

U.S. stocks dropped for the first time in four days on concern slower sales at Target Corp. and the biggest drop in home prices in at least six years signal consumer spending may weaken more than expected.

Macy's Inc., Circuit City Stores Inc. and Dillard's Inc. led declines by 30 of 31 retailers in the Standard & Poor's 500 Index. Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., the biggest U.S. banks, retreated after billionaire investor Warren Buffett said he declined to invest in financial firms that approached him recently about buying stakes.

The S&P 500 decreased 5.32, or 0.4 percent, to 1,491.13 at 12:20 p.m. in New York. The Dow Jones Industrial Average lost 36.9, or 0.3 percent, to 13,512.43. The Nasdaq Composite Index slipped 8.03, or 0.3 percent, to 2,705.47. More than two stocks fell for every one that rose on the New York Stock Exchange. Asian benchmarks climbed and most European markets were closed.

The consumer is feeling some pain, said Frederic Dickson, chief market strategist at D.A. Davidson & Co., which manages $23 billion in Lake Oswego, Oregon. Investors are going to be looking for a spillover effect.

Target's forecast that December sales at stores open at least a year may drop 1 percent added to evidence that chain stores will post the weakest holiday sales growth in five years. Retailers in the S&P 500 have tumbled 18 percent as a group this year as home values decline and energy prices climb. The S&P/Case-Shiller index today showed property values slid 6.1 percent in October.

The S&P 500 is headed for its first quarterly decline since the three months ended June 2006. Today's drop limited the benchmark's advance to 5.1 percent in 2007, while the Dow average has gained 8.4 percent this year and the Nasdaq is up 12 percent.

Target Tumbles

Target fell $1.36 to $51.11. Target had earlier predicted a gain of as much as 5 percent for stores open at least a year. It issued its lowered forecast, which ranged from a possible gain of 1 percent to a drop of 1 percent, after financial markets closed on Dec. 24.

Macy's, the owner of the namesake department store chain and Bloomingdale's, lost $1.48, or 5.5 percent, to a three-year low of $25.53.

Circuit City, the second-largest consumer electronics chain, tumbled 24 cents to a four-year low of $4.71. Dillard's, the retailer that operates mostly in the South, slid $1.15 to $19.15.

Wal-Mart Stores Inc., the world's biggest retailer, slumped 55 cents to $48.19. The National Retail Federation has forecast a 4 percent increase in total sales for the holidays, the smallest gain since 2002.

`Consumer-Led Recession'

We're definitely heading into a consumer-led recession, said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based consulting and investment banking firm for retailers. Retail stocks have been killed this year and rightfully so, but the worst is yet to come.

Property values fell 6.1 percent in October from the previous year, more than economists had forecast, according to the S&P/Case-Shiller home-price index. The decline was the biggest since the group started keeping year-over-year records in 2001. The index has fallen every month this year.

Citigroup slid 47 cents to $30.51. Bank of America lost 33 cents to $41.95. JPMorgan slumped 21 cents to $44.62. Financial firms in the S&P 500, down almost 20 percent this year, fell 1 percent today.

Buffett Not `Salivating'

We've seen some deals as you can imagine in this period, Buffett said today in an interview on CNBC. So far, we have not seen a deal that causes me to start salivating. He didn't say which firms approached him.

The biggest U.S. residential real-estate slump in 16 years has rendered mortgages unaffordable for many homeowners, leading to an increase in foreclosures. The world's biggest banks and brokerage firms have written down the value of their assets, including mortgage-backed bonds, by at least $96 billion.

Berkshire Hathaway Inc., Buffett's holding company, added $1,920 to $139,900 after saying it will pay $4.5 billion to take control of closely held Marmon Holdings Inc.

Hess Corp. led energy companies higher as crude oil climbed for a third straight day to a one-month high of $95.92 a barrel in New York. The fifth-largest U.S. oil company rose $1.98 to a record $104.36. Exxon Mobil Corp., the biggest U.S. oil company, rose 96 cents to $94.96.

U.S. stocks rose Dec. 24, sending benchmark indexes to the highest levels in two weeks, as falling interest rates and a $33.3 billion agreement to restructure Canadian commercial debt improved the outlook for credit markets.

Source - Bloomberg

Consumer Slowdown to Hurt U.S. Economy Into 2008

U.S. economic growth will slow to 1 percent in the fourth quarter as consumer spending cools and the housing slump enters its third year, a survey showed.

Economists cut their estimates for the expansion this quarter from November's 1.5 percent forecast, according to the median of 63 estimates in a Bloomberg News survey taken Dec. 3 to Dec. 10. Gross domestic product in the first three months of next year will also be less than previously projected.

Spending, which accounts for more than two-thirds of the economy, will grow in 2008 at the slowest pace in 17 years as higher fuel costs and falling home values limit consumers' buying power. The Federal Reserve will probably lower interest rates today and again early next year to fend off recession, the survey said.

Everything is going against the consumer, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who lowered his growth forecast to 0.5 percent for this quarter. Confidence is off quite a bit, and gasoline is going to take a toll. We're very, very close to a recession.

The world's largest economy grew at a 4.9 percent pace from July through September.

The 1.7 percent average increase in consumer spending this quarter and next would be the weakest back-to-back rise in five years. The 2.1 percent gain projected for all of 2008 is the smallest since a 0.2 percent increase in 1991, during a recession.

No Growth

Consumers are slowing their spending quite considerably, and we have a much, much worse housing situation, said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts, who slashed his fourth-quarter growth forecast to zero, from 1.3 percent in the November survey.

It wouldn't take much of a shock at this point to push us over the edge into a contraction, he said.

Consumers face headwinds from reduced access to credit, higher gasoline prices and falling home values, Fed chief Ben S. Bernanke said last month.

Policy makers will reduce the benchmark interest rate by a quarter point to 4.25 percent today and follow it with a similar reduction in one of the first two meetings of 2008, according to the survey median. Economists last month projected the Fed would not change policy today.

Some economists predicted the Fed would be more aggressive.

The risks of a recession are not insignificant, said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago, who forecast a half-point reduction at today's meeting. The Fed looked a bit flip-floppy earlier, and that's hurt them. They now need to step up to the plate.

`Feels Recessionary'

The growth forecast for next year's first quarter was cut by a half point to 1.5 percent and each of the next three quarters was reduced by a 10th of a point. For all of 2008, the economy will probably expand 2.3 percent compared with 2.2 percent this year.

It feels recessionary even if it doesn't fit into the traditional definition of a recession, said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. We'll have painfully slow growth for most of next year.

Slower growth will also help cool inflation. Consumer prices will probably rise 3.8 percent this year, the most since 1990, reflecting the jump in fuel and food costs, the survey showed. Economists projected the cost of living will increase 2.3 percent next year.

The Fed's preferred inflation gauge, which is tied to consumer spending and excludes food and fuel, will rise 1.8 percent in 2008 after a 1.9 percent increase this year, the survey showed. The measure, known as core prices, would be within the range forecast by policy makers.

Not `Bleak'

Core inflation will move sideways to down and headline inflation also will slow as energy prices come off, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. Not all news is bleak.

Rising wages and more jobs may help consumers weather the jump in fuel costs and the housing slump, economists said. The unemployment rate, currently at 4.7 percent, will only rise to 5 percent by the second half of 2008, according to the Bloomberg survey median.

The economy added 94,000 jobs last month and workers' average hourly earnings were up 3.8 percent from November 2006, the Labor Department reported Dec. 7. About 80 percent of this month's forecasts were received after the figures were released.

The consumer is slowing, not declining, said LaVorgna, who cut his fourth-quarter growth estimate to 0.5 percent from the 1 percent he projected last month. I don't have a strong forecast for 2008, but I don't think we'll have a recession.

Source - Bloomberg

U.S. Sales Rose 8.3% Day After Thanksgiving

U.S. consumers spent $10.3 billion on holiday purchases yesterday, an 8.3 percent increase from last year, after retailers promoted electronics and toys to woo shoppers.

Consumers remained resilient and proved they were willing to spend even with oil prices rising and other economic pressures, ShopperTrak RCT Corp. said today in a statement. The day after Thanksgiving, dubbed Black Friday, typically accounts for between 4.5 percent and 5 percent of all holiday sales, the company said.

Holiday sales will increase 3.6 percent this year, the Chicago-based research firm estimates, trailing a 4.8 percent gain last year. Retailers have responded to the anticipated drop by offering discounts on flat-panel TVs and diamond necklaces to lure shoppers.

It's an extraordinary number, beyond what we anticipated, Bill Martin, co-founder of ShopperTrak, said in an interview.

I think there was pent-up demand given the slow sales in October and November because of unseasonably warm weather, and people want to find value for their dollar and reacted to the specials.

ShopperTrak estimates customer visits to stores will drop 2.5 percent this holiday season, which covers the 32 days between Thanksgiving Day and Christmas.

Seeking Bargains

Sales in November and December may rise 4 percent, the slowest gain since 2002, according to the National Retail Federation in Washington. About 55 percent of shoppers said they will spend less this year than in 2006, according to a Discover Financial Services survey.

Consumers flocked to Toys R Us Inc., Wal-Mart Stores Inc., Macy's Inc. and other retailers in the pre-dawn hours yesterday to find bargains on Nintendo Wii game consoles and sterling-silver jewelry.

The day after the U.S. Thanksgiving holiday is called Black Friday because at one time it was considered the day retailers turned profitable for the year.

Kenyata Luckey, a 22-year-old waitress, is spending about $300 this year, half the amount she spent last year, because there aren't as many good deals at Target Corp. and Wal- Mart.

She bought remote-control cars, a Big Wheel bike and stocking stuffers for her son, niece and nephew at an Atlanta Target store at 7:30 a.m. yesterday. A talking-doll set she wanted cost $50, and wasn't on sale, so she didn't buy it.

There are sales, but not on the stuff I wanted, Luckey said.

Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail consulting firm, says the best deals are yet to come.

You've got to move product, Davidowitz said yesterday. And retailers are on a terrible sales trend, so there is no choice but to sell the inventory at what you can sell it at.

ShopperTrak measures foot traffic in shopping centers and malls using more than 45,000 video devices.

Source - Bloomberg