CONSUMER SPENDING: Consumer spending was unchanged in April, the weakest showing since September.
INCOMES AND SAVINGS: Incomes grew by 0.4 percent. But households used the extra cash to boost their savings, pushing the savings rate up to 3.6 percent. That's up from the 18-month low of 3.1 percent in March.
OUTLOOK: Consumers are key to keeping the economic recovery alive. They account for 70 percent of economic activity. The fear is their spending could slow if unemployment remains high.
CHICAGO (Reuters) –
As Wal-Mart Stores Inc (WMT.N) employees chant the corporate cheer at the company's annual meeting this year, Wall Street is less enthusiastic about the retailer's U.S. sales trailing a fitful economic recovery.
The shares of the world's largest retailer are down about 1 percent since the annual pep rally for thousands of workers that doubles as Wal-Mart's annual shareholder meeting was held a year ago, while the Standard & Poor's 500 (.SPX) has rallied more than 16 percent over the same period.
Short of looking for a return to the recession that helped spur Wal-Mart's sales and stock in 2008, investors want to know how Chief Executive Mike Duke plans to boost U.S. sales while the company's core customer continues to be pressured by high unemployment and other shoppers are trading up to competitors.
"I'd sure like to hear that they have a better idea than I do of how they are going to keep the customers," said Janna Sampson, co-chief investment officer at OakBrook Investments, which holds 488,000 Wal-Mart shares.
"I know they continued to focus on price, but I'm not sure if the economy turns up that's the be all and end all," she said.
Wal-Mart's sales at U.S. discount stores open at least a year have been down for the past four quarters, and the company said that measure could be down 2 percent to up 1 percent in the current quarter, excluding fuel.
Wal-Mart has announced thousands of price "rollbacks" to attract a customers that remain on very tight budgets. It has aggressively cut costs to help fund the rollbacks and increase earnings. Overseas sales have also helped lift results.
"If they can demonstrate that they can continue to (manage costs) even during a soft sales environment, that should be enough reassurance to investors that they will continue to manage the business well and even grow earnings," Edward Jones analyst Matt Arnold said.
MIXED ECONOMY, CONSUMER SPLIT
The U.S. economy's performance has been mixed in recent months. On Friday, the Commerce Department said consumer spending was flat in April. But the Thomson Reuters/University of Michigan index of consumer confidence edged up to 73.6 this month from 72.2 in April.
So while low prices resonate with some customers, those who feel more secure in their jobs have started to shift to rival Target Corp (TGT.N) and some department stores to buy more discretionary items like clothing and home furnishings.
"They are doing everything they can to hold on to at least some of the trade-down customer they gained during the recession, but they are seeing at least some of those customers migrate to other stores," Arnold said.
Wal-Mart has done well in attracting customers with expanded fresh foods and low-priced prescription medicines.
But even on the grocery side, the company has stumbled. In March, the retailer said that it had put about 300 items back on its shelves that were lopped off as part of the company's Project Impact U.S. store remodeling program.
Though the items were slower sellers, shoppers expected them to be on the shelves, and Wal-Mart missed out on customers' entire shopping trips if they were not stocked.
Still, last week, the company said that stores that have been remodeled were showing sales improvements in electronics, fresh food, seasonal products and other areas.
Wal-Mart also concedes that its U.S. apparel business is a "work in progress," in the word's of Vice Chairman Eduardo Castro-Wright.
While the core customer at Wal-Mart is not necessarily looking to be on the cutting edge of fashion trends, the customer "wants to be current and wants to look good," said Bryan Eshelman, managing director in the global retail practice of consulting firm AlixPartners.
"Wal-Mart has the wonderful advantage of frequency of visit," he said. "It makes sense they have some items in apparel that surprise and wow the customer."
Wal-Mart has been more successful in overhauling its consumer electronics business in recent years and has taken the No. 2 spot in the country.
Earlier this month, the company said it was bringing in new products like televisions that can connect wirelessly to Internet movie streaming services -- such as Netflix Inc (NFLX.O) and the Vudu service Wal-Mart just bought -- and carry un-Walmart price tags of up to $2,000.
Wal-Mart shares were down 15 cents at $50.55 on Friday afternoon on the New York Stock Exchange.
(Reporting by Brad Dorfman; Editing by Michele Gershberg and Gerald E. McCormick)
LONDON – Fitch Ratings cut Spain's credit rating on Friday, saying the government's efforts to reduce debt will weigh on economic growth in coming months — another blow to Prime Minister Jose Luis Rodriguez Zapatero's efforts to shore up confidence in state finances.
The ratings agency cut the country's rating one notch from AAA to AA plus, saying Zapatero's efforts to close the budget deficit "will materially reduce the rate of growth of the Spanish economy over the medium term."
The ratings agency decision echoes concerns from economists that efforts to cut state debt will also withdraw stimulus from the economy and hinder growth. Lower growth in turn means gathering less in tax revenues.
Spain currently has an unemployment rate of 20 percent and is struggling with large deficits and the hangover from a collapsed housing and real estate boom like that in the U.S.
On Thursday, Zapatero's austerity package freezing pensions and cutting civil servants' wages passed by just one vote in Parliament. The narrow margin underscored the government's shaky position in parliament and the depth of resistance by unions to austerity measures.
The measures — which aim to cut spending by euro15 billion ($18.4 billion) this year and next and reduce Spain's oversized deficit — have been welcomed by the European Union and the International Monetary Fund but much criticized at home as a major reversal by the Socialists. The cuts are designed to reassure markets that Spain's government debt problems won't mushroom into a Greek-style crisis.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
LONDON (AP) — Fitch Ratings has cut Spain's credit rating, saying the government's efforts to reduce debt will weigh on economic growth in coming months.
The ratings agency cut the country's rating one notch from AAA to AA plus, the company said in a statement.