Latest Retail Sales Data Signal Slow Holiday

Deep discounting at U.S. retailers drew consumers to stores in November, two reports showed Tuesday, but disappointing results for the last week of the month may herald a grim holiday season.

Analysts are hoping consumer spending--which accounts for two-thirds of U.S. economic activity--will soften the recession that began in March and help lead the economy back onto a growth path.

But a retail chain-store sales index tracked by Bank of Tokyo-Mitsubishi and brokerage UBS Warburg fell 1.7% during the week ended Dec. 1, the largest drop since the week following the Sept. 11 terrorist attacks, the companies said.

Also, Instinet Research’s Redbook unit said its retail sales index rose 2.4% in the four weeks ended Dec. 1 compared with the previous month, but Redbook said retailers were disappointed with the latest week’s results, blaming unseasonably warm weather for a lag in sales of winter clothing.

“It’s a very risky environment,� said Mike Niemira, senior economist at Bank of Tokyo-Mitsubishi, who noted that the significance of holiday sales went well beyond the retail sector.

“Statistically, a strong Christmas bodes well for the subsequent year from an economic standpoint. So, if it’s a soft Christmas season, then that’s the kind of the year that you look ahead for,� he said.

The holidays are crucial for retailers because November and December sales account for about one-quarter of overall retail sales for the whole year.

But so far, the numbers do not look promising.

“Holiday shopping is expected to be the weakest since the recession of 1990-91,� said Steven Wood, chief financial economist at FinancialOxygen, in Walnut Creek, Calif.

Part of the trouble is that value-conscious consumers’ increasing appetite for bargains cuts into the overall dollar value of sales, hurting retailers’ profit margins.

Bank of Tokyo-Mitsubishi’s sales index, which measures overall sales volume in dollar amounts, fell to 386.4 last week, its lowest level in five weeks.

The sales index’s decline indicates the trouble retailers face in revving up sales through deep discounting.

“The fundamentals just aren’t there for a strong holiday season,� said Steven Loeys, economist at Lehman Bros.