Growing anxiety about the strength and speed of the global economic recovery left retail shares with their steepest declines in almost a month on Wednesday and put a dent in stock markets around the world.
The S&P Retail Index fell 8.35 points, or 2 percent, to 405.85, its sharpest drop since July 16, on a day when only two of the 172 North American and European equities tracked by WWD — Macy’s Inc. and Syms Inc. — registered gains, the former driven by second-quarter profits that exceeded expectations.
The retail sector fared better than other components of the economy, as seen in the Dow Jones Industrial Average’s 2.5 percent decline to 10,378.83, just shy of its July 16 decrease. The falloffs left both the Dow and the retail index below their 2010 starting points.
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The declines could be traced to comments from the Federal Open Market Committee on Tuesday, saying “the pace of recovery in output and employment has slowed in recent months” and is likely to be “more modest” than anticipated in the near term. The Fed cited the need for fresh economic stimulus and said it would buy government debt. It signaled no change in its policy of keeping the federal funds rate at zero to 0.25 percent, because economic conditions, including “stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
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Against the backdrop of the Fed announcement, major overseas markets recorded precipitous declines, worsened by a report of slower growth in Chinese manufacturing. While Hong Kong’s Hang Seng Index was off a relatively modest 0.8 percent, to 21,294.54, Tokyo’s Nikkei 225 shed 2.7 percent to end Wednesday trading at 9,292.85. The CAC 40 fell 2.7 percent to 3,628.29 in Paris, the FTSE 100 was down 2.4 percent to 5,245.21 in London and the DAX declined 2.1 percent to 6,154.07 in Frankfurt.
Concerns about the direction of the U.S. economy only grew Wednesday when the Commerce Department reported that the overall trade deficit expanded to $49.9 billion in June from $42 billion in May. A jump in imports, driven by consumer goods and cars, widened the deficit more than expected, said Nigel Gault, chief U.S. economist with IHS Global Insight.
“The burst in imports associated with restocking is probably reaching its climax, since underlying final sales growth remains weak and firms will want to avoid an excessive inventory build-up, so the trade deficit should improve in coming months,” Gault said.
While declines in stock prices were almost universal, they were particularly difficult for U.S.-based specialty stores, a category that dominated WWD’s list of worst performers for the day. New York & Company Inc. suffered most, falling 9.9 percent to $2.10, followed by Destination Maternity Corp. (8.4 percent to $27.34) and beleaguered jewelry retailer Zale Corp. (8.4 percent to $1.86). Vendors experiencing significant contractions included Revlon Inc. (7.7 percent to $11.09), Liz Claiborne Inc. (7.6 percent to $4.97) and Perry Ellis International Inc. (7 percent to $20.12).
One day after disclosing to the Securities and Exchange Commission that it would be unable to submit its second-quarter financial results on time, American Apparel Inc.’s shares gave back 4 cents, or 2.8 percent, to close at $1.40.