Retail stocks get the recession memo as sales plunge

A big test in today's renewed stock market rout will be whether key indexes can hold above their five-year lows reached on Friday.

The retail sector has already flunked that test. On the heels of the abysmal report on September retail sales -- which recorded the biggest drop in three years -- shares of major store chains have tumbled through last week’s lows.

With about 20 minutes to go in the trading session, Nordstrom Inc. was down $2.07 to $16.81, its lowest since 2004. Kohl’s Corp. was off $2.53 to $29.97, the lowest since 1999. And Macy’s Inc. slid $1.31 to $9.19, a level the stock hasn’t seen since 1995.

It's hard to understand, but some investors seem to just be coming to grips with how much trouble the U.S. consumer is facing.

As Goldman Sachs & Co. economists noted in a report today on the September sales data:

Retail sales were extremely weak, both in absolute terms and relative to consensus. Total retail sales fell by 1.2%, pulled down by weak auto sales as spending declined by 3.8%. However, even outside of autos spending is very weak, down by 0.6%. Even excluding all the volatile measures -- ex gasoline, auto dealers and building materials -- spending is still very weak; this measure fell by 0.7%. In fact, it is tough to find any bright spots, as spending in all categories except health/personal care and gasoline stations declined. With the stimulus in the rearview mirror, consumers are sharply pulling back their spending.

From Bernard Baumohl at Economic Outlook Group:

We now have a consistent series of reports telling us that the deteriorating job market, falling incomes, collapsing stock market, plummeting home values, and the credit crises have forced Americans to shut down spending. Everyone, it appears, is now hunkering down in preparation of a painful recession.

Over the last 12 months, retail sales have fallen 1% in current dollars, and about 6% in real terms (inflation adjusted). When consumers slash spending by these magnitudes, you know the economy is going to take a major hit.

Photo credit: David McNew / Getty Images

Comments

[Sherry]

At least we are hearing more about becoming energy independent which should be at the forefront of any presidential agenda. The incredible ripple effect of our dependence on foreign oil to power our country has had a devastating effect on every aspect of our economy. From fueling our vehicles to heating our homes and increased electric bills American's are hurting from the high cost to our society. Every consumer product has seen a sharp increase in price. There is little left over after fueling up the family cars to get back and forth to work and paying more for every item purchased to even be able to save or invest. Most have had to dip into their savings just to get by as of late. Jobs and homes are being lost at rapidly increasing rate that keeps rising higher and higher. We have so much available to us as a nation such in the way of free renewable energy such as wind and solar, technologies that reduce our consumption of oil such as hybrid and electric plug in cars. Yet, we seem to be at a loss as a nation when it comes to developing a plan to get ourselves off being so dependent of foreign oil. Our economy is a slave to the whims of those who supply the exorbitantly priced oil to us. We pump our hard earned dollars into their economy with each gallon of THEIR oil we pump into our energy consuming cars, businesses and homes. We need to, as a nation WAKE UP AND SMELL THE COFFEE... I just read a very compelling recently released book called The Manhattan Project of 2009 by Jeff Wilson. It needs to be a required read for every member or our elected officials. We need to educate ourselves on becoming an energy independent country and demanding our elected officials get us out of the mess we are in being dependent of foreign oil!