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THE WEEK AHEAD

Retailers' quarterly data will be scrutinized for economic insight

Wall Street is eager to learn whether earnings rose because of higher sales, not cost-cutting measures, and whether consumers are more willing to spend, especially as the holiday season approaches.

November 09, 2009|Associated Press

Investors will get some guidance about the economy this week from data issued not by the government but by big retailers in the form of third-quarter earnings reports.

The financial markets are still trying to get a sense of whether consumers, while worried about unemployment, are nonetheless willing to spend, especially as the holiday season approaches. Retailers' earnings reports and outlooks for the future should give them clues about the economic recovery.

Investors will also get a first look at consumer sentiment during November.

"For this economy to really come back, we have to depend on the consumer," said Yu-Dee Chang, principal of ACE Investment Strategists in McLean, Va.

The greatest obstacle to increased consumer spending is unemployment. And it's not only unemployed consumers who aren't spending, it's also those who are afraid of losing their jobs.

Investors did find some positives in the Labor Department's largely bleak October employment report Friday. While the government said unemployment has risen above 10% for the first time since 1983, the market managed a modest advance as investors theorized that the weak labor market would mean the Federal Reserve would continue to keep interest rates low for some time. The major stock indexes ended the week with a gain of 3%.

Still, while traders ultimately didn't panic about the jobs data, they do know that the report could bode poorly for consumer spending, which accounts for more than two-thirds of economic activity in the United States.

Retailers' monthly sales reports released Thursday showed that shoppers were still not splurging as unemployment climbed and credit remained tight. And the Fed said consumers borrowed less for a record eighth consecutive month in September.

"Consumers aren't going to spend as much if they are worried about their jobs," said Ray Harrison, principal of Harrison Financial Group in Citrus Heights, Calif.

A hesitant consumer is particularly troubling heading into the holiday shopping season, and economists say that longer-term, stronger consumer spending will be necessary to sustain a recovery.

Analysts say, however, that some retailers may be the beneficiaries of consumers' continuing caution, which has made many of them shop at discount stores.

"People will still spend," Harrison said. "They will just adjust where they spend."

Bentonville, Ark.-based Wal-Mart Stores Inc., the nation's biggest retailer, has seen an influx of price-conscious shoppers and is expected on Thursday to announce higher third-quarter earnings.

Other major chains, including teen retailer Abercrombie & Fitch Co. and department stores Macy's Inc. and J.C. Penney Co., are also expected to report earnings this week. Wall Street will want to know whether the companies' profits rose because of higher sales, not cost-cutting measures.

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At a glance

TODAY

Quarterly earnings reports due from Electronic Arts, Live Nation and Ticketmaster Entertainment.

TUESDAY

Labor Department releases job openings and labor turnover survey for September.

Senate Health, Education, Labor and Pensions subcommittee hearing on swine flu and paid sick days.

Senate Banking, Housing and Urban Affairs Committee hearing on bank overdraft fees legislation.

Quarterly earnings report due from Beazer Homes USA.

WEDNESDAY

Bond markets are closed for Veterans Day.

Quarterly earnings report due from Macy's.

THURSDAY

Labor Department releases weekly jobless claims.

Treasury releases federal budget for October.

Freddie Mac releases weekly mortgage rates.

Quarterly earnings reports due from Walt Disney, Kohl's, Nordstrom and Wal-Mart Stores.

President Obama attends the Asia-Pacific Economic Cooperation meeting in Singapore.

FRIDAY

Commerce Department releases international trade data for September.

Quarterly earnings reports due from Abercrombie & Fitch and J.C. Penney.

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