U.S. consumer confidence tumbled to a
28-year low this month as rising prices strained household
finances, while another drop in single-family housing starts
underscored problems still plaguing the economy.
Friday's reports highlighted worries that the United States
could be entering the early days of a period of stagflation
like the late 1970s and early 1980s, characterized by a
sluggish economy and accelerated price growth.
The data showed consumers' short-term inflation
expectations hit a 26-year high, heightening the dilemma facing
the Federal Reserve, which has bet that a slow economy will
"The Fed has continuously said they want to contain
inflation expectations -- and they are not contained," said Tom
Sowanick, chief investment officer at Clearbrook Financial LLC
in Princeton, New Jersey.
"The Fed is going to have to address inflation expectations
in some manner, whether they talk it down or they force it
down, possibly by taking away the aggressive rate cuts over the
Stocks ended little changed another record high in oil
prices helped energy shares, though it reminded investors of
inflation worries. The bond market, which abhors inflation,
The Fed has slashed its target for the benchmark overnight
federal funds rate by 3.25 percentage points since crises in
the housing and credit markets last year pushed the economy
toward recession. The rate cuts are a textbook response to the
threat of recession, but the opposite strategy used to fight
The Reuters/University of Michigan index of consumer
confidence certainly highlighted the threat to economic growth,
dropping to 59.5 in May -- the lowest level since June 1980.
This is bad news for the United States, where consumers
fuel two-thirds of national economic activity through their
purchases of goods and services.
"Consumer confidence continued to slip in early May due to
surging food and fuel prices," the Surveys of Consumers
statement said. "Record numbers of consumers viewed the economy
in recession and saw little hope of recovery anytime soon."
This took the shine off news from the Commerce Department
that starts on new U.S. homes rose by a surprisingly strong 8.2
percent in April, the biggest monthly increase in more than two
years. The bounce, however, came entirely from multiple-unit
dwellings such as apartments and condominiums.
Applications for new building permits also turned up for
the first time in five months, presenting another rare bit of
good news for the beleaguered U.S. housing market, the original
source of the economy's current troubles.
In a sign that housing's woes were not yet over,
groundbreaking on single-family homes in the United States
dropped to the slowest pace since 1991.
Meanwhile, the Michigan report's gauge of one-year
inflation expectations surged to 5.2 percent -- the highest
since February 1982 -- from 4.8 percent in April.
Also worrying for policy-makers at the Federal Reserve,
five-year inflation expectations were the highest since August
1996, edging up to 3.3 percent from April's 3.2 percent.
The inflation measures challenge the Fed's view that
soaring commodity prices have not yet led to an increase in
long-term expectations for price growth.
The president of the Federal Reserve Bank of Atlanta,
Dennis Lockhart, acknowledged inflation was a problem.
"Inflation has been elevated since mid-decade, basically
since 2005. For my own comfort zone, it is at an uncomfortable
level," he told CNBC television in an interview.
"My base-case forecast is that the weak economy will bring
inflation down. And in fact, if you look at some of the
information, the data we've seen in the last couple of cycles
... it has slowed," said Lockhart, who is not a voting member
of the Fed's interest rate-setting committee this year.
(Additional reporting by Glenn Somerville in Washington,
Jennifer Ablan in New York; Editing by Jonathan Oatis)
Abercrombie said it earned $62.1 million, or 69 cents per share, in the three months ended May 3 compared with profits of $60.1 million, or 65 cents a share, a year ago.
Sales rose 8 percent to $800.1 million from $742.4 million last year. But sales at stores open at least a year, considered a key indicator of a retailer's strength, fell 3 percent.
Analysts surveyed by Thomson Financial expected profits of 66 cents a share on sales of $810 million. The earnings estimates typically exclude one-time items.
Abercrombie shares rose 11 cents to $76.19.
The results are "pretty positive," especially in comparison to other apparel retailers, said Brady Lemos, an analyst with Morningstar. He noted that Abercrombie's stores have become particularly popular among foreign visitors to the U.S.
"They have been going to these tourist-destination stores in New York, Miami, Las Vegas. They love the dollar compared to the euro right now, and they're spending quite a bit at these stores," Lemos said.
The company's modest earnings growth also contrasted with the earnings declines posted Thursday by several department store chains. J.C. Penney Co.'s first quarter profit fell by nearly half compared to a year ago, while Kohl's Inc.'s results were down nearly 27 percent and Nordstrom Inc. reported a 24 percent decline. On Wednesday, Macy's Inc. posted a $59 million loss for the quarter.
"Despite a tough selling environment, we produced bottom-line growth while still remaining true to the aspirational positioning of our brands," Abercrombie & Fitch Chairman and CEO Mike Jeffries said in a statement.
The company on Friday reaffirmed that it expects earnings for the first half of its 2008 fiscal year to come in within a range of $1.61 to $1.65 per share, representing a 5 to 8 percent increase from a year ago. Analysts are looking for a first-half profit of $1.61 per share.
Abercrombie last week announced that it will add a second flagship store in Europe, opening a store in Copenhagen, Denmark, in 2009. Abercrombie already has a store in London and says it is securing locations for stores in Italy, France, Germany, Spain and Sweden. The company plans to open a store in Tokyo in late 2009.
Abercrombie, based in the Columbus suburb of New Albany, operates approximately 1,000 stores under the names Abercrombie & Fitch, abercrombie for children, Hollister Co., Ruehl and Gilly Hicks.
On the Net:
Stocks finished little changed on
Friday as surging oil prices lifted energy shares and offset
data that showed consumer confidence sank to its lowest in 28
Exxon Mobil Corp (XOM.N) and Chevron Corp (CVX.N) rose more
than 1 percent each, supporting the Dow and S&P 500. Oil prices
in New York closed at a record high above $126 on a weakening
dollar and a Goldman Sachs forecast that crude would reach $141
per barrel. Earlier, U.S. oil futures hit an intraday record
The lofty level of oil prices helped drive down other
sectors, however. An S&P index of retail shares (.RLX) was down
U.S. consumer confidence tumbled this month, according to
the Reuters/University of Michigan Surveys of Consumers, as
short-term inflation expectations hit their highest since the
stagflation era of the early 1980s.
The consumer accounts for "around two-thirds to 75 percent
of the U.S. economy. So I think when you look at energy prices
and housing prices weakening in key areas, these are all
aspects keeping the consumer weak, and sentiment numbers are
reflecting that," said Subodh Kumar, chief investment
strategist at Subodh Kumar & Associates in Toronto.
For the week, stocks rose, however, and the S&P had its
best weekly percentage gain in about a month, with data showing
a modest rise in consumer prices in April contributing to the
week's upbeat news.
The Dow Jones industrial average (.DJI) slipped 5.86
points, or 0.05 percent, to end at 12,986.80. But the Standard
& Poor's 500 Index (.SPX) inched up 1.78 points, or 0.13
percent, to 1,425.35. The Nasdaq Composite Index (.IXIC)
dropped 4.88 points, or 0.19 percent, to 2,528.85.
For the week, the Dow was up 1.9 percent, the S&P was up
2.7 percent and the Nasdaq was up 3.4 percent.
Trading volume continued to be on the light side on the New
York Stock Exchange, with about 1.32 billion shares changing
hands, below last year's estimated daily average of roughly
1.90 billion. NYSE trading volume hit its low for the year on
Monday, when 1.05 billion shares traded hands.
Financial shares sagged after Merrill Lynch downgraded two
large regional U.S. banks, KeyCorp (KEY.N) and Regions
Financial Corp (RF.N), citing a bleak outlook for such banks.
An S&P index of financial shares (.GSPF) fell 1.4 percent.
June crude rose $2.17 to settle at $126.29 per barrel and
hit an intraday record of $127.82.
Chevron Corp (CVX.N) gained 1.9 percent to $100.38 and
Exxon Mobil rose 1.5 percent to $92.67.
A surprising increase in U.S. housing starts gave the
market some reason for optimism early in the session.
Housing starts rose by a surprisingly strong 8.2 percent in
April and building permit applications turned up for the first
time in five months, the Commerce Department said. But all of
the increase was due to a huge rebound in the multifamily
sector, which had a sharp decline in March. The single-family
sector actually declined.
Stronger-than-expected earnings from retailers Nordstrom
(JWN.N) , up 3.1 percent at $38.44, and Abercrombie & Fitch
(ANF.N), up 0.1 percent at $76.19, also helped.
On the Nasdaq, about 2.29 billion shares traded, above last
year's daily average of 2.17 billion.
Advancing stocks outnumbered declining ones on the NYSE by
8 to 7, while decliners beat advancers on the Nasdaq by about 4
(Editing by Jan Paschal)