Fall in Retail Sales Cools Optimism on Wall Street

On Wednesday, a decline in retail sales jolted investors and forecasters, who were becoming used to spotting glimmers of hope in the economy. Consumer confidence had been rising, job losses were not quite as terrible and home sales were picking up in some markets.

But not all the pieces are falling into place. On Wednesday, the government reported that retail sales fell again as consumers spent less on gasoline, appliances and groceries, signaling that they are not likely to begin spending in droves anytime soon.

Investors hammered shares of industrial producers and consumer-related businesses. The Dow Jones industrial average dropped 184.22 points, or 2.18 percent, to 8,284.89, while the wider Standard & Poor’s 500-stock index fell 2.69 percent, or 24.43 points, to 883.92. The Nasdaq was off 3 percent, 51.73 points, at 1,664.19.

The Commerce Department reported that retail sales fell a seasonally adjusted 0.4 percent last month. Economists predicted that sales would be flat, their declines halted by stability in consumer spending and improved store traffic.

“There’s weakness across quite a large number of categories,” said Nigel Gault, chief United States economist at IHS Global Insight. “We had huge declines during the fourth quarter, and then we had a couple of decent months of rebound. But now we’ve reversed most of that.”

Sales at retailers like clothing shops and to restaurants were down 10.1 percent from a year ago, and sales for March were revised down to a decline of 1.3 percent.

In April, consumers spent slightly more on automobiles and car parts, and more on home improvement supplies, sporting goods and books. But sales at electronics and appliance stores fell 2.8 percent from March, and gas station sales fell 2.3 percent.

The numbers showed that consumer spending, which accounts for 70 percent of the economy, seems to be bumping along at lower levels. Or, as Ian Shepherdson of High Frequency Economics wrote in a research note, “Green shoots withering.”

Consumers are still cautious about spending money, and they are putting more away into savings accounts as the recession continues. But retail analysts say spending has stabilized since late last year, when consumer spending plunged as the financial crisis broke out.

Shoppers may not be returning to their old spendthrift ways, but they are returning to the malls, and are willing to buy when they see bargains, analysts said. “What we’ve got is a consumer that’s roughly stabilized, but not a consumer who’s ready to come back and drive the economy,” Mr. Gault said.

Richard Moody, chief economist at Forward Capital, said the 18-month recession might profoundly change the way Americans spend. Declines in housing values and stock portfolios have erased trillions of dollars in household wealth, and tightened lending has erased the illusion that consumers could live substantially beyond their means by tapping home-equity loans and other lines of credit.

With the unemployment rate at 8.9 percent, its highest level in 25 years, many consumers are likely to keep their heads down and save more to guard against losing their jobs, economists said.

For retailers, the new American thriftiness means stores will have to keep offering fat discounts and two-for-one sales to entice shoppers through the front door. But analysts said many retailers have trimmed back their inventories to match lower levels of demand, so they will most likely not have to slash prices by 80 percent or more simply to clear their overstocked shelves.

Underscoring the effects of that belt-tightening, Macy’s surprised analysts by reporting a smaller-than-expected loss for the three months that ended May 2. On Wednesday, Macy’s reported a loss of $88 million, or 21 cents a share, compared with a loss of $59 million, or 14 cents a share, for the period a year ago.

Macy’s said in February that it would drastically change its structure by consolidating its four large divisions into a single organization. To cut costs, the company trimmed its 2009 capital expenditure budget and reduced its quarterly dividend.

Despite effective cost cuts and bright spots in certain categories, retailing executives tamped down investor hopes of a quick recovery.

“We’re just not ready to say ‘Mission accomplished,’ ” Terry J. Lundgren, president and chief executive of Macy’s Inc., said Wednesday during a question-and-answer session with investors. While pleased with the performance of stores that have been leading the My Macy’s initiative to tailor merchandise to local needs and tastes, Mr. Lundgren said in the conference call, “I’m just not satisfied at all with our minus-9 results.” Same-store sales, or sales at stores open at least a year, were down 9 percent in the quarter.

Liz Claiborne — the apparel company that owns brands including Kate Spade, Juicy Couture, Lucky Brand and Mexx — also urged investors to adopt more realistic expectations.

The company posted a loss that was worse than analysts had expected. For the three months that ended April 4, Liz Claiborne lost $91.4 million, or 97 cents a share, compared with a loss of $31.02 million, or 33 cents a share, for the period a year ago. Comparable sales declined by double digits at Juicy Couture, Lucky Brand and Kate Spade. At Mexx, sales fell 7 percent.

The first three months of a retailer’s fiscal year are typically the least important; it’s the last three — those around Christmas — that mean the most. Liz Claiborne said it expected its results to improve by the third quarter, mainly because of $70 million in cost reductions announced in February. For now, though, the company said that consumers were still in hiding and that stores were continuing to try to attract them with impressive discounts.

“This year is just barely under way,” said Mr. Lundgren of Macy’s. “It’s the first inning.”

The Treasury’s 10-year note rose 14/32, to 100 1/32. The yield, which moves in the opposite direction from the price, fell to 3.12 percent, from 3.17 percent late Tuesday.