Consumers remain skittish about economy

Consumers are still apparently riding a confidence roller-coaster that's currently on the down slope. The Conference Board Consumer Confidence Index, which edged down in October, declined further in November. The Index now stands at 102.9 (1985=100), down from 105.1 in October.

In spite of an unemployment rate that economists consider full employment, consumers remain somewhat skittish about the labor market. "A tighter labor market and a more guarded short-term outlook have combined to curb consumers' confidence in November," said Lynn Franco, director of the Conference Board Consumer Research Center. "Despite this retreat in confidence, the overall level of confidence remains favorable and continues to suggest the economy will expand throughout the first half of 2007."

There was a slightly greater increase in November over October in the percent of consumers believing jobs are "hard to get" than those believing jobs are "plentiful," even though the unemployment level is one that most economists consider "full employment."

In fact, "the lack of qualified labor is a major complaint of businesses and if firms really need people, they are going to have to pay up for them," said Joel Naroff, Commerce Bancorp's chief economist. "With hours worked up and the average hourly wage rising moderately, it looks like income growth should be quite solid."

Consumers aren't as sure as Naroff. In the Conference Board survey, the proportion of consumers expecting their incomes to increase in the months ahead edged up only slightly to 20.7% from 20.0% in October.

Beside the labor market, other factors weigh on consumer confidence. Energy prices are still fluctuating and are expected to continue their wild ride. The housing market's bottom is still uncertain, although most economists predict a soft landing. The stock market, on the other hand, where many Americans have at least part of their nest eggs, is on a roll. So it's no wonder the American consumer's confidence fluctuates almost daily. Even so, they keep spending; early indications for holiday sales were promising if not exuberant.

Early reports on November sales also looked good for everything but furniture. "No matter what the retailers may be saying, it appears that consumers have taken out their wallets so far this holiday shopping season," Naroff said.

That's the good news at retail. The bad news is same-store sales for many retailers have been weak for a good part of the year and November was no exception. Same store sales were down to 2.3% for about 60 retailers tracked by Columbus, Ohio-based Retail Forward, a management consulting and market research firm specializing in retail intelligence and strategies.

November's results are down from the 3.2% sales-weighted composite reported for October and the 3.7% composite reported in November of 2005. November's results were dragged down primarily by weak results at discount department stores, apparel and accessory stores and dollar stores. The strongest performance was reported by drug stores, department stores and warehouse clubs.

Even mighty Wal-Mart posted a same-store sales decline in November, the first in 10 years. On the other hand, Target posted a healthy 5.9% same-store sales increase for November.

Pier 1, which has been struggling all year, had a 15.3% decline in comp store sales for November. Comps for the three quarters ending November 25 were down by 11.6%.

"Despite aggressive marketing and promotional efforts in November, our sales results in the home furnishings categories remain weak," said Marvin J. Girouard, Pier 1's chairman and chief executive officer.

At JCPenney, comp store sales were up only 1.4% in November, but a more respectable 4% for the year. The company singled out "selected home categories" as one of the best sales performers in department stores for the month, and "hard home" as one of the drivers for the 17.5% increase in Internet sales in November.

November same-store sales at Federated Department stores beat company expectations, coming in at 8.5% rather than the predicted 3% to 5%. "November was another great month for Macy's and Bloomingdale's stores, which exceeded our expectations across the country," said Terry J. Lundgren, Federated's chairman, president and CEO. "While we continue to be disappointed in the performance of former May Company locations, particularly in home merchandise categories, we remain confident our ongoing strategy for success is sound. In part, the sales lag in former May doors can be attributed to intense promotional activity last year, which we chose not to repeat, thus creating unfavorable year-over-year comparisons."

Other November same-store sales results:

• Saks, up 7.2%
• Costco, up 5%
• Stein Mart, up 3.8%
• BJs, up, 0.6%, with furniture one of the weaker categories
• Ross Stores, flat, with home one of the best-performing categories
• Dillards, down 3%, with furniture significantly below trend.

The Conference Board's Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households, done by research company TNS. The cutoff date for the latest monthly survey was Nov. 14.