Weakest holiday season in years

Clothing sellers, department stores suffer big sales misses in December; Wal-Mart and Costco benefit as more cash-strapped consumers shopped for discounts.

NEW YORK (CNNMoney.com) -- The 2007 holiday shopping season is turning out to be the weakest in years after retailers across-the-board reported deep declines in their December sales Thursday.
"These numbers are bad because consumers are clearly seeing some pain here," said Ken Perkins, president of sales tracker Retail Metrics.
According to Perkins, the holiday season started off strong as shoppers lapped up juicy discounts on Black Friday, the day after Thanksgiving which traditionally marks the start of the November-December gift-buying marathon which can account for as much as half of retailers' annual profits and sales.
"But then there was a three-week lull after that. The early shopping momentum didn't carry through the rest of the [holiday season]," Perkins said.
In the overall retail sector, Thomson Financial, which compares monthly results at 43 of the nation's largest retail chains based on analysts' estimates, expects total December same-store sales rose just 0.9 percent, much weaker than last year's 3.3 percent gain for the same period in 2006.
Even though November same-store sales rose a much better 4 percent overall, the average of the two months taken together is estimated to show a 2.4 percent increase, which would be the weakest comparable sales growth for the two months since the 2.3 percent gain in 2004.
The National Retail Federation, the industry's largest trade group, expects total sales for November and December combined rose 4 percent this past holiday season, which would mark the slowest pace of growth since 2002. The NRF will release its final tally of holiday sales next week.
Of the 29 retailers that have already reported their results, the firm said 66 percent missed analysts' sales forecasts, 31 percent beat projections, while 3 percent met estimates.
"Consumers are feeling the squeeze. They are spending less," Perkins said. "Now there's job uncertainty with last month's unemployment number showing a surprisingly large uptick."
Clothing sellers, department stores and other specialty chains delivered some of the biggest sales misses last month.
Gap (GPS, Fortune 500), the No. 1 apparel seller, reported a 6 percent same-store sales decline last month, teen apparel chain Pacific Sunwear posted a 2.9 percent sales drop, and women's clothing chain Ann Taylor's sales tumbled 9.4 percent.
Elsewhere, Macy's (M, Fortune 500) sales fell 7.9 percent versus expectations for a 6.5 percent decline while sales at Dillard's fell 5 percent.
Better month for Wal-Mart
Wal-Mart Stores reported December sales that were at the high-end of its guidance for the key holiday shopping month, but warned about its fourth-quarter earnings.
New Target CEO aims at bulls-eye
Overall, the retail sector reported what appear to be the weakest holiday sales in several years. Apparel and department stores were among the poorer performers.
Wal-Mart (WMT, Fortune 500), the world's largest retailer, said December sales at its stores open at least a year, a key measure of retail performance known as same-store sales, rose 2.4 percent, at the high-end of its guidance of a 1 to 3 percent increase for the month.
The retailer said sales were driven by strong demand for its grocery, pharmacy and electronics products.
"Our price leadership position was clear very early in the holiday season, and customers responded throughout the period to our pricing and merchandise offerings," Eduardo Castro-Wright, Wal-Mart Stores CEO, said in a statement.
However, Wal-Mart said it also expects fourth quarter earnings "will be pressured by higher interest expense versus last year." The retailer estimates earnings of between 99 cents to $1.03 a share for the quarter.
Analysts expect the retailer to post a profit of $1.02 a share for the quarter.
Wal-Mart was especially aggressive with holiday discounts this past season, and chopped priced on thousands of toys and electronics products in late October, weeks ahead of its rivals.
For January, Wal-Mart said it expects same-store sales to increase by 2 percent.
But Wal-Mart's rival Target (TGT, Fortune 500) posted a 5 percent sales decline, missing analysts' forecasts for a 2.5 percent decrease, and warned that fourth-quarter results would be below the prior year's performance.
There were a handful of winners besides Wal-Mart. Costco (COST, Fortune 500) posted a same-store sales increase of 7 percent overall, including a 5 percent same-store sales increase in its U.S. stores.
Buckle Inc., seller of branded denim and trendy clothing, posted a stellar 18.7 percent jump in its December same-store sales. Teen clothier Aeropostale reported a 12.2 percent same-store sales increase, which analysts say came on the back of heavy discounting in December.

Tata Motors rolls out $2,500 car

The Indian automaker touts the Nano, the world's cheapest car, as a boon to the developing world; environmental experts worry about increased congestion, pollution.

NEW DELHI (AP) -- India's Tata Motors on Thursday unveiled its much anticipated $2,500 car, an ultra-cheap price tag that brings car ownership into the reach of tens of millions of people. But critics worry the car could overwhelm the country's roads and create an environmental nightmare.
Company Chairman Ratan Tata, introducing the Nano during India's main auto show, drove onto a stage in a white version of the tiny four-door subcompact, his head nearly touching the roof.
With a snub nose and a sloping roof, the world's cheapest car can fit five people - if they squeeze. And the basic version is spare: there's no radio, no passenger-side mirror and only one windshield wiper. If you want air conditioning to cope with India's brutal summers, you need to get the deluxe version.
While the price has created a buzz, critics say the Nano could lead to possibly millions more automobiles hitting already clogged Indian roads, adding to mounting air and noise pollution problems. Others have said Tata will have to sacrifice quality and safety standards to meet the target price.
The chairman, though, insists the car will meet safety standards and pollute even less than motorcycles, passing domestic and European emission standards and averaging about 50 miles per gallon (20 kilometers per liter).
Chief U.N. climate scientist Rajendra Pachauri, who shared last year's Nobel Peace Prize, said last month that "I am having nightmares" about the prospect of the low-cost car.
"Dr. Pachauri need not have nightmares," Ratan Tata said at the unveiling. "For us it's a milestone and I hope we can make a contribution to the country."
The basic model will sell for for 100,000 rupees - $2,500 - but analysts estimate that customers could pay 20 to 30 percent more than that to cover taxes, delivery and other charges.
Tata (TTM) has long promised that he'd create a 100,000-rupee car, a vow that was much-derided in the global industry but created a frenzy of attention in India. On Thursday, nearly every news station covered the unveiling live.
"A promise is a promise," Tata told the crowd.
The company has said they expect the car to revolutionize the auto industry, and analysts believe the Nano may force other manufacturers to lower their own pricing. French automaker Renault SA (RNSDF) and its Japanese partner, Nissan Motor Co., (NSANY) are trying to determine if they can sell a compact car for less than $3,000.
For now, the car will be sold only in India, but Tata has said it eventually hopes to export it. The Nano could become the basis for other similar super-cheap models in developing markets around the world.
As rising middle class incomes drive demand for cars in India, automakers expect the ranks of car owners in the country to expand dramatically in coming years.
But for some, a huge influx of cars is a terrifying prospect of traffic jams at midnight, hours-long commutes and increasing pollution.
"If you're talking about urban environment, it will cause serious problems," said Jamie Leather, a transport specialist with the Asian Development Bank. "It's a major concern."
In 2005, Indian vehicles released 219 million tons of carbon dioxide, the leading greenhouse gas blamed for global warming.
By 2035, that number is projected to increase to 1,467 million tons, due largely to the expanding middle-class and the expected rise of low-cost cars, according to the Asian Development Bank.
"The cheaper and cheaper vehicles become, the quicker those pollution levels will increase," Leather said.

Weekly unemployment claims fall

Labor Department says the number of people filing unemployment claims fell last week though concerns about jobs remain.

WASHINGTON (AP) -- The number of newly laid off workers filing claims for unemployment benefits unexpectedly fell last week although the decline was not viewed as evidence of an improving job market.
The Labor Department reported that 322,000 persons filed applications for jobless benefits, down by 15,000 from the previous week when claims had declined by 20,000.
While the second straight drop in weekly claims caught analysts by surprise, it was not seen as a sign of a fundamental improvement in the labor market, which has been coming under strains that have raised concerns about a possible recession.
Labor Department analysts said the declines of the past two weeks were more the result of difficulties in adjusting the numbers around the Christmas and New Year's holidays when state claims offices are open fewer days.
The four-week average for jobless claims dipped slightly to 341,000, the lowest in a month.

Will foreclosures spark an arson boom?

As homeowners get more desperate, the insurance industry is bracing for an increase in arson.

NEW YORK (Fortune) -- Faced with foreclosure on her Russellville, Indiana home, Christina Snyder allegedly concocted the kind of plan that now has insurance executives on edge.
According to the county prosecutor, the 31-year-old Snyder allegedly offered to pay a neighbor $5,000 to help her burn down her house and make it look like a botched rape attempt - all in order to claim $80,000 in insurance money. Snyder wanted the neighbor to bind her hands in duct tape, write "whore" on her shirt, and then help her escape once the blaze was set, the prosecutor says. The neighbor demurred, instead reporting Snyder to police.
With the national foreclosure rate zooming and the real estate market in a two-year funk, the insurance industry fears more homeowners will see arson as a way out of their financial woes. A recent report by the industry-funded Coalition Against Insurance Fraud notes that with "untold thousands of homeowners struggling with ballooning subprime mortgage payments, fraud fighters are watching closely for a spike in arsons by desperate homeowners who can no longer afford their home payments."
History indicates such a spike is coming. "When the economy is down, we see an increase in fraud," says Dennis Schulkins, a claim consultant in State Farm's Special Investigative Unit.
It may already be happening. Allstate (ALL, Fortune 500) spokesman Mike Siemienas says his company has seen an increase nationally in arsons among homes in foreclosure. In California, the stateนs insurance division reports that the number of questionable residential fires in 2007 increased 76 percent over 2006.
National arson statistics for 2007 aren't yet available, but Federal Bureau of Investigation crime data shows there was a significant uptick - 4 percent - in suburban arson in 2006, when the real estate downtown began to take hold. The arson increase in 2006 marked a change from the prior three years when suburban arson fell 3 percent, 5 percent and 6 percent, respectively. Says Dennis Jay, the Coalition Against Insurance Fraud's executive director, "It's a growing problem."

Stocks set for lower open

Futures decline on mostly weak retail sales; investors await speech from Fed chief Bernanke.

NEW YORK (CNNMoney.com) -- Stocks were poised for a lower open Thursday as investors took in a string of weak retail sales reports and awaited a speech from Federal Reserve Chairman Ben Bernanke amid growing fears of a U.S. recession.
Wall Street managed to bounce back from a string of miserable sessions on Wednesday, lifting the Dow and S&P 500 more than 1 percent. But futures were down at 7:39 a..m. ET.
Bernanke is due to speak at 1 p.m. about financial markets, the nation's economic outlook and Fed policy in response to those issues. A number of top Wall Street economists have written notes this week suggesting the U.S. economy could already be in recession, prompting calls for deeper rate cuts from the Fed and for Congress to pass some sort of fiscal stimulus.
One factor sparking recession worries is generally weak retail sales seen in December. No. 1 retailer Wal-Mart Stores (WMT, Fortune 500) reported that December sales at stores open at least a year, a closely watched measure known as same-store sales, rose 2.7 percent. That was near the high end of the company's earlier guidance and better than the 1.8 percent forecast of analysts surveyed by sales tracker Thomson First Call.
But the company warned about its fourth-quarter earnings, saying results would be "pressured."
Other retailers are expected to report weak December sales and earnings in the make-or-break fourth quarter. First Call's consensus estimate is that sales at other major retailers rose an average of only 0.2 percent for the crucial holiday shopping period.
Wal-Mart rival Target (TGT, Fortune 500), which has already warned of weak December sales, announced late Wednesday that longtime CEO Bob Ulrich will retire May 1, although he will hold on to the chairman title until the end of fiscal 2008.
Among the early reports from retailers, teen specialty retailers Hot Topic (HOTT) and American Eagle Outfitters (AEO) both reported drops in same-store sales that were close to forecasts. But both still said fourth-quarter earnings would be below earlier guidance.
One retailer reporting better-than-expected results was wholesale club Costco (COST, Fortune 500), which posted a 7 percent gain that topped the forecast of a 5.7 percent rise. But much of that gain from a 16 percent jump in overseas sales and higher prices for its gasoline sales. U.S. same-store sales excluding gas rose a more modest 4 percent.
Consumers could also curb spending if they have trouble dealing with large credit card balances in a tighter credit market. One warning sign of that came when credit card issuer Capital One (COF, Fortune 500) said late Wednesday that it would not meet its 2007 profit forecasts due to a rise in loan delinquencies and the weakening economy.
NYSE Euronext (NYX) could move after a report in The Wall Street Journal said the company is in talks to buy the American Stock Exchange.
The Journal also reported that Citigroup and Merrill Lynch, two financial firms battered by mortgage problems, are seeking billions in additional capital from foreign investors.
Dow component Alcoa (AA, Fortune 500) kicked off earnings season late Wednesday reporting a rise in net income that was helped by a one-time gain from the sale of its packaging and consumer businesses. Shares rose 4 percent in after-hours trading on the news.
In global trade, most Asian markets fell. European stocks fell after the Bank of England and European Central bank both held interest rates steady.
Oil prices fell below the $95 a barrel mark. The price of a barrel of light, sweet crude for February delivery lost 76 cents to $94.91 a barrel in electronic trading.

'Subprime' named Word of the Year

The American Dialect Society chose the word associated with the mortgage mess over other business terms such as 'Facebook', 'green' and 'Googleganger.'

CHICAGO (AP) -- Even the American Dialect Society knows how risky home mortgages are these days.
The group of wordsmiths chose "subprime" as 2007's Word of the Year at its annual convention Friday.
"'Subprime' has been around with bankers for awhile, but now everyone is talking about 'subprime,"' said Wayne Glowka, a spokesman for the group and a dean at Reinhardt College in Waleska, Ga. "It's affecting all kinds of people in all kinds of places."
About 80 members of the organization spent two days debating the merits of runners-up "Facebook," "green," "Googleganger" and "waterboarding" before voting for an adjective that means "a risky or less than ideal loan, mortgage or investment."
The choice signifies the public's concern for a "deepening mortgage crisis," the society said in a statement.
Mortgage stock picks tanked in 2007
"Facebook," as a noun, verb or adjective, was popular with younger linguists, Glowka said.
Several people lobbied for "green," which "designates environmental concern," but the term has been around for years, he said. The word topped the 2007 "Most Useful" category, one of numerous subgroups the society chooses.
The group also decided that although "waterboarding," an interrogation technique that simulates drowning, gained a lot of attention during recent attorney general confirmation hearings, it was a bigger deal in 2004, Glowka said.
But what's a "Googleganger?"
A play on "doppelganger," the word is "a person with your name who shows up when you Google yourself," according to the society.
Glowka said he assessed many Google (GOOG, Fortune 500)-related words.
"Just Google 'Google' and you'll turn them up," he said. The ghostly double of a word won the 2007 "Most Creative" designation.
As for "subprime," Glowka said it is an odd word -- at least as far as linguists are concerned.
The prefix "sub" translates roughly to "below the standard," while "prime" means something close to "the best."
So, according to Glowka, the word really means "far below the best."
"People were saying that students were referring to their tests, 'I'm going to subprime this; I'm going to mess it up,"' he said.
The American Dialect Society, founded in 1889, comprises linguists, grammarians, historians and scholars, among others. The society began choosing words of the year in 1990 for fun, not in an official capacity to induct words into the English language.
In 2006, the organization chose "plutoed," which means "to be demoted or devalued."

Recession may already be here

Economists shift from wondering if there will be a recession to asking if the U.S. economy has already shifted into reverse.
By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- The question for many economists is not if the U.S. economy will fall into a recession. It's whether it already has.
The formal recognition of a start of a recession probably wouldn't come for at least six months if not more than a year, as official judges from the National Bureau of Economic Research (NBER) pour through various economic readings.
But top economists from two of the major Wall Street firms - Merrill Lynch and Goldman Sachs - say recession is likely already here.
The tipping point for both economists was the report released last Friday that showed a sharp jump in the unemployment rate in December, coupled with little growth.
"Friday's employment report strongly suggests that an official recession has arrived," wrote David Rosenberg, North American economist for Merrill, in a note this week entitled "Recession a reality."
He wrote that history points to a recession when the average length of the work week fell in back-to-back quarters, as it did in the third and fourth quarters of 2007. And he said at no time in the past 60 years has there been a half-percentage point climb in the unemployment rate from the low point without a recession following. The latest unemployment reading stands at 5.0 percent, up from 4.4 percent in March.
In case of emergency, slash rates
The traditional sign of a recession is two or more quarters when economic activity declines rather than grows. That hasn't happened - the final reading of growth in the third quarter came in at a healthy 4.9 percent.
The NBER's calculation of when a recession starts and when it ends is far more refined than the two-quarters-of-economic-decline test. It looks at a number of factors, such as employment, real personal income and manufacturing, and comes up with a date pegged to a specific month, rather than a quarter. For example, it judged that the most recent recession ran from March 2001 to November 2001.
There's wide agreement among economists that growth in the fourth quarter fell sharply from third quarter levels, although most still forecast slim growth in the period. But many are forecasting a better-than-even chance that some quarters in 2008 will show declines.
Goldman's senior U.S. economist Jan Hatzius is one of those saying a 2008 recession is likely, with roughly a two-in-three chance. Hatzius is worried about the three-month average for unemployment, which has jumped more than one-third of a percentage point from its low.
"Whenever you've tripped the one-third-percentage point barrier, it's an [recession] indicator that's ten out of ten," he said.
Hatzius is expecting the recession will be fairly mild, lasting only 6 months, with the economy declining by no more than 1 percent in any quarter.
Recession cures - plans to goose growth
But that is based on his assumption that the Federal Reserve cuts rates deeply and quickly, to 2.5 percent from its current 4.25 percent. He also believes that given election-year pressures, there's likely to be some form of tax cut or rebate to try stimulate the economy.
"If the data is every bit as bad as we're expecting and the Fed for some reason refuses to respond, you could see a more severe recession," Hatzius said.
Hatzius also said he believes that the downturn in housing is nowhere near being played out. Hatzius is forecasting that home prices end up plunging 20 to 25 percent below peak levels. And he said that a further sharp decline in housing prices will hit both consumer spending and credit markets, which are two more reasons he's forecasting a recession.
Cautious optimism
Of course, there are still economists who believe that the economy is more likely to avoid a recession than sink into one. But even they admit to being more concerned than they were a few weeks ago.
"Our own recession-warning model currently indicates that the odds of a recession occurring in the next six months are slightly greater than 50 percent," said the monthly economic outlook from Wachovia. "That said, we still believe the economy will avoid an outright downturn, as a good part of December's weakness appears to be tied to special factors." It cited severe winter storms in much of the country as one of the issues distorting the latest readings.
Even some other economists who believe a recession is likely, such as Harvard University's Martin Feldstein, the president of the NBER, don't believe the economy has already started to shrink.
Bush tax cut guru: Recession now likely
"Of course these numbers can be revised, but as long as we have positive numbers for employment growth - very weak but still positive - and for industrial production, when the business-cycle dating committee looks at the evidence, they wouldn't say we're currently in a recession," he said.
Feldstein, one of the fathers of the Bush administration tax cuts passed early in his tenure, is advocating tax cuts and further Fed cuts to respond to the current weakness, even if the economy doesn't slip into recession.
Economist Bob Brusca said that while he thinks there is now a better than even chance that there will be a recession, that doesn't mean the Fed can start slashing rates because of the continued threat of inflation.
"A lot has yet to happen if recession is to kick in," Brusca said. "It may yet happen. But for policy that is not the issue. Policy needs to react to circumstances and that refers to both the inflation and growth profiles."
Other economists point out it's almost irrelevant as to whether the economy fell into a recession in December, or does so a few months from now.
Bernard Baumohl, executive director of the Economic Outlook Group, said that even if the economy avoids a recession, it will do so with very slow growth in 2008. He said it's almost immaterial from that perspective if there is a recession or not.
"It'll have the same painful effect on businesses and households," Baumohl said.