Retail Sales Probably Fell in February: U.S. Economy Preview

Sales at U.S. retailers probably fell in February for the seventh time in eight months as soaring unemployment battered consumers, economists said before a government report this week.

Purchases dropped 0.5 percent, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures due on March 12. Another report may show the trade gap shrank in January as Americans bought fewer goods made abroad.

Consumers are shopping at discounters like Wal-Mart Stores Inc. to make ends meet as home values plunge and the jobless rate climbs, forsaking purchases of expensive items like automobiles. President Barack Obama, trying to maintain support for his $787 billion stimulus plan, last week said the deteriorating economy demands “bold action and big ideas.”

“The headwinds are coming from everywhere,” said Jonathan Basile, an economist at Credit Suisse Holdings in New York. “Persistent job losses and reports of pay cuts have become embedded in consumer expectations and they think that incomes are going to shrink.”

A Labor Department report last week showed employers eliminated 651,000 jobs in February and the unemployment rate jumped to 8.1 percent, the highest level since December 1983. Job losses have now exceeded 600,000 for three straight months, the first time that’s happened since records began in 1939.

While Obama’s stimulus plan aims to create or save 3.5 million jobs, the nation has now already lost 4.4 million since the recession began in December 2007.

Wal-Mart Gains

Lower home values and stricter lending rules have made consumers reluctant to spend beyond necessities. Wal-Mart, the world’s largest retailer, last week said sales at stores open at least a year rose 5.1 percent in February as cash-strapped shoppers sought cheaper gasoline and groceries.

“It’s almost like a significant percentage of consumers realize that they might have been living beyond their real means,” Eduardo Castro-Wright, Bentonville, Arkansas-based Wal- Mart’s head of U.S. stores, said in a Feb. 26 interview.

Others didn’t fare as well. Retailers from Macy’s Inc., the second-biggest U.S. department-store company, to Gap Inc., the largest U.S. apparel chain, and luxury seller Saks Inc. reported declines.

Retailers’ March same-store sales may drop as much as 1 percent, according to Mike Niemira, chief economist at the New York-based International Council of Shopping Centers.

Fewer Autos

Commerce’s report may also show that excluding automobiles, sales declined 0.1 percent last month, the survey showed. Total sales rose 1 percent in January.

Auto dealers are struggling. Sales in February fell to the lowest level since 1981, industry data showed last week. General Motors Corp., surviving with the help of government loans, said sales plunged 53 percent, while Ford Motor Co. had a 48 percent decline.

“This is still a deepening recession and a deepening credit crunch,” Treasury Secretary Timothy Geithner said at a Senate hearing last week.

Coca-Cola to Invest $2 Billion in China Over 3 Years

Coca-Cola Co., the world’s largest soft-drink maker, plans to invest $2 billion in China over the next three years as part of its attempt to win more of the nation’s 1.3 billion consumers.

The investment plan includes a $90 million technology center that opened in Shanghai today, the Atlanta-based company said in an e-mailed statement. Coca-Cola’s proposed investment is 25 percent more than the $1.6 billion it had already spent in China since returning in 1979.

Beverage companies including Coca-Cola and PepsiCo Inc. are expanding in China, betting demand will continue to grow as the recession erodes consumer spending in the U.S. Coca-Cola’s planned spending may also aid its $2.4 billion acquisition of China Huiyuan Juice Group Ltd., which was announced in September and is now awaiting government approval.

“Coca-Cola’s investment is a positive for the Huiyuan acquisition,” said Kevin Luo, a consumer goods analyst with Guotai Junan Securities HK Ltd. in Shenzhen, southern China. “This investment will help create jobs, which would obviously be welcomed by the government, so even though it won’t have a direct impact on the acquisition’s approval, it can’t hurt.”

Pepsi said on Nov. 3 it plans to invest $1 billion in China in the next four years. Japan’s Asahi Breweries Ltd. in January paid $667 million for a 19.9 percent stake in Tsingtao Brewery Co., China’s biggest beer company.

Market Leader

Coca-Cola controls 54 percent of the Chinese soda market and Pepsi 31 percent, according to research company Euromonitor International.

Retail spending in China may rise 14 percent this year, the National Development and Reform Commission, the nation’s top economic planning agency, said in a report distributed yesterday to the country’s legislature. China has also cut taxes and increased welfare spending in a bid to boost consumer spending amid the worst financial crisis since the Great Depression.

“It’s wise for international companies to invest in China, especially at a time when China is trying to boost domestic consumption,” said Kenny Tang, executive director of Redford Securities Co. in Hong Kong. “There’s still room for growth.”

Coca-Cola’s sales by volume rose 19 percent last year in China and declined by 1 percent in North America, according to the company’s annual report.

“Our commitment and confidence in China never wavers,” Coca-Cola Chief Executive Officer Muhtar Kent said in today’s statement. The company will invest in new plants, distribution and sales and marketing, Kent said.

Coca-Cola and Huiyuan, which applied for approval from China’s Ministry of Commerce in September, said then that they expected a government decision by March 23.

“We are in very regular contact with the Ministry of Commerce, and we try to be as helpful as possible in answering questions and providing supplementary information,” Kenth Kaerhoeg, a spokesman for Coca-Cola Asia, said by e-mail today.

Wal-Mart Says Customers Shopped More, Boosts Dividend

Wal-Mart Stores Inc. customers made more trips to buy groceries, televisions and other products for entertaining at home last month, outpacing the retailer’s quarterly sales forecast. The company raised its annual dividend by 15 percent.

“Shopping trips had seen a significant decline back when gasoline prices were at record high levels,” Eduardo Castro- Wright, Wal-Mart’s head of U.S. stores, said in a Feb. 26 interview. “Now we’re seeing a reversal of that.”

Wal-Mart, the world’s biggest retailer, reported today that sales at U.S. stores open at least a year increased 5.1 percent in February, better than its prediction for 1 percent to 3 percent growth in the three months ending May 1. An increase in customer traffic drove the gains, Wal-Mart said in a statement.

Consumers’ biggest worry has shifted from gasoline prices, which have tumbled from a record in July, to “the fear of losing their jobs and being able to make payments on mortgages and credit-card balances,” Castro-Wright said.

Shoppers want to save money by eating in and are buying groceries, small appliances, cookware and “anything that has to do with the home,” he said last week from his office in Bentonville, Arkansas, where Wal-Mart is based.

Shares Jump

Wal-Mart advanced $2.33, or 4.8 percent, to $50.82 at 9:48 a.m. in New York Stock Exchange composite trading. Before today, the stock has declined 14 percent this year. Its 2008 advance of 18 percent outpaced the other 29 Dow Jones Industrial Average stocks.

The annual dividend will increase to $1.09 a share from 95 cents a share, Wal-Mart said today. The first of four quarterly dividends of 27.25 cents for the year ending Jan. 31 will be payable April 6 to shareholders of record March 13.

Wal-Mart said in a statement that the strength of its operations allowed the company to increase its dividend payment again this year.

Castro-Wright, 54, bases his consumer views on Wal-Mart’s monthly survey of 500,000 to 1 million shoppers and daily sales figures.

“You’ve got a trend toward financial responsibility,” Castro-Wright said. “It’s almost like a significant percentage of consumers realize that they might have been living beyond their real means.”

Credit Cards, Mortgages

Consumers fell behind on credit-card payments as U.S. unemployment reached 7.6 percent in January, the highest rate since 1992. Foreclosure filings have topped a quarter-million for 10 straight months, according to RealtyTrac Inc.

The average U.S. pump price for regular unleaded gasoline was $1.933 a gallon yesterday, down from a record $4.114 on July 17, according to the Web site of AAA, the nation’s largest motorist organization.

Americans who are able to splurge are buying flat-panel TVs and video games, another example of families staying at home, Castro-Wright said. Consumers are also buying “basic sporting goods -- not big sets of complicated, high-end, expensive fitness equipment, but very basic dumbbells,” he said.