External indicators

The economic backdrop for kids merchants and vendors continues to give off mixed signals, analysts and recent surveys say.

"The economy, or at least the consumer, is not likely to give up the ghost," said Joel Naroff, chief economist of Philadelphia's Commerce Bank, speaking on the latest unemployment figures from the Bureau of Labor Statistics — 4.4% in October. A year earlier, the jobless rate was 4.9%. "While the holiday shopping season may not be spectacular, it is not likely to be poor either," Naroff said. "Expanding payrolls, falling unemployment rates and rapidly rising wages all point to a very tight and solid labor market."

Over the year, according to the Bureau of Labor Statistics, average hourly earnings have increased 3.9% to $16.99 in October. Average hourly wages in the retail sector increased to $12.72, 2.4% higher than last October.

In spite of an unemployment rate that is what economists consider "full employment" and is lower than the average rate of the '90s and the first half of this decade, consumers don't seem quite so upbeat about future job growth and wages.

The Conference Board Consumer Confidence Index, which increased in September, edged down in October. The Index now stands at 105.4 (1985=100), down from 105.9 in September.

"October's dip in confidence was prompted by consumers' mixed assessment of present-day business conditions and a less favorable view of the job market," said Lynn Franco, director of The Conference Board Consumer Research Center. "Consumers' short-term expectations posted a slight improvement, but the outlook for the labor market remains mixed. Overall, this month's readings continue to suggest a moderate pace of economic growth and more of the same for the first few months of 2007."

Consumers' views of labor market conditions were less positive than lastmonth. Consumers saying jobs are "plentiful" declined to 25.8% from 26.2%. Those claiming jobs are "hard to get" increased to 22.0% from 20.9% in September. On the other hand, consumers' short-term outlook was moderately more optimistic in October than in September. Consumers expecting business conditions to improve in the next six months increased to 18.5% from 16.5%.

The Conference Board's Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households, conducted by research company TNS. The cutoff date for the October survey was Oct. 24.

According to the Bureau of Labor Statistics, unemployment rates for adult men and whites showed little or no change over the month. The biggest drop was in the jobless rate for blacks and Hispanics. As for future job growth, Naroff said, "Most likely job gains remain in the 125,000 range, which can be categorized as OK. But when you add in the rising wages, you get strong income growth and that does not point to any major economic slowdown."

Analyzing the results of about 60 publicly held retailers, Columbus, Ohio-based Retail Forward, reported same-store sales for the group slipped to 3.3% in October, down from the 4.3% sales-weighted composite reported in September and the 4.4% composite reported in October 2005.

The mixed results going into the holiday season are supported by a separate Retail Forward survey of shoppers indicating shoppers do not have big plans to increase how much they spend compared with last year.

"A letup should be expected given the lingering impact of a weaker housing market and elevated gasoline prices. But this doesn't necessarily suggest a big letdown for the holidays," said Frank Badillo, vice president at Retail Forward and the company's senior economist.

Retail Forward's survey results show a majority of all shoppers plan to spend about the same as they did last year on holiday gifts. Down Market shoppers, households earning less than $22,500 a year, are most cautious about holiday spending this year with more than half planning to spend less than last year or nothing at all. And, Down Market shoppers who are buying holiday gifts estimate spending only about half as much as all shoppers.

Fifty-five percent of all shoppers plan to spend about the same amount this year compared with last year.

More than twice as many shoppers plan to spend somewhat/much less this year compared with those that plan to spend somewhat/much more. Overall, shoppers who plan to buy gifts plan to spend an average of $664 this year.

Up Market shoppers, households with annual incomes of $75,000 or more, will spend the most with $974; Middle Market shoppers plan to spend an average of $545; and Down Market shoppers plan to spend an average of $358.