Retail takes a hit from decline of consumer confidence

NEW YORK Consumer confidence fell for the second time this summer, as worries about the job market heighten.

The Conference Board said its Consumer Confidence Index fell to 46.6, down from 49.3 in June, missing economists' expectations of a reading of 49. A reading above 90 would signal the economy is stronger.

The Present Situation Index also decreased to 23.4 from 25 last month, while the Expectations Index dropped to 62 from 65.5 in June.

Lynn Franco, director of The Conference Board Consumer Research Center, noted that the decline in the Present Situation Index was caused primarily by a worsening job market. The deteriorating outlook for consumers was "more the result of an increase in the proportion of consumers expecting no change in business and labor market conditions." However, Franco said, "More consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead."

Retail shares were mostly down after the data was released. Wal-Mart Stores 0.4% to $48.77, Amazon.com shed 1.5% to $83.21, GameStop was off 2% to $23.06, and Netflix fell 2% to $40.90. Shares of Office Depot plunged 14% to $4.60 after posting a bigger-than-expected loss in its second quarter. Coach tanked 6% to $26.62, despite meeting quarterly expectations and announcing some new growth initiatives.

Although consumer confidence may be dismal, retail sales for the week ended July 28 increased 1%, according to the International Council of Shopping Centers. This is the second week this month sales saw a slight increase.

ICSC, though, still expects July same-store sales to be off by about 5.5% due to leaner clearance merchandise compared with last year. According to Deloitte Strategic Advisor Richard Hyman, things will be different in the post-recession economy.

Deloitte Strategic Advisor Richard Hyman says that things will be different in the post-recession economy.

According to Hyman, during the past decade, a majority of consumer spending that was driven by big financing promotions has ceased now that credit is limited.

 “Consumers were also able to spend more because of the easy availability of credit . . . These conditions underpinned retail growth for the past 10 years but have now disappeared . . . They will clearly not return once the recession is over,” said Hyman.

The economic collapse heavily impacted the spending habits of consumers and many are expected to be more careful about reckless spending.

“This will produce polarization: needs-driven spending will gravitate towards retailers able to tick the most important consumer boxes like price and convenience,” said Hyman. “Although it will remain the engine of retail growth, wants-driven spend will slow and consumers will be much more choosy.”