Consumers pulled back in February — the question now is, will the spreading banking crisis keep them from reengaging?
Seasonally adjusted retail and food service sales fell 0.4% compared with January, according to the Census Bureau’s latest reading on monthly sales in the U.S.
That has the retail fiscal year starting off on a weak note — economists had projected a more modest 0.1% month-to-month decline.
And while Wall Street has been laser-focused on consumer spending, trying to gauge the strength of the economy and the Federal Reserve’s fight against inflation, all of that took a back seat in the market Wednesday.
Instead, investors were zeroed in on the unfolding banking crisis, which moved on from the Silicon Valley Bank and took a trip to Europe when Credit Suisse disclosed that it had “identified material weaknesses in our internal control over financial reporting” with a “failure to design and maintain an effective risk assessment process.”
Axel Lehmann, Credit Suisse’s chairman, said the prospect of the bank needing government assistance was “not the topic” and sought to tamp down worries in a panel discussion in Riyadh that was moderated by CNBC.
“We are regulated, we have strong capital ratios, very strong balance sheet,” Lehmann said. “We are all hands on deck. So that’s not the topic whatsoever.”
But after the run on Silicon Valley Bank last week — which prompted the government to step in, take over and ultimately guarantee depositors would be able to get their money out even if it wasn’t insured — Wall Street was taking very few chances.
Shares of Credit Suisse were down 16.4% to 1.87 Swiss francs, with other European stocks getting hit hard.
Among the decliners were H&M Hennes & Mauritz, down 7.6% to 124.16 kronor after hints of slowing in the company’s first-quarter report; Adidas, down 6.3% to 139.58 euros; Kering, down 4.7% to 538.80 euros; Mytheresa, down 3.9% to $6.11; Hermès International, down 3.6% to 1,673 euros, and LVMH Moët Hennessy Louis Vuitton, down 3.5% to 772.70 euros.
The Dow Jones Industrial Average was off 1.4%, or 452.12 points, to 31,703.28 in midmorning trading.
When they’re not wondering over the strength of the global financial infrastructure, investors in retail are fretting over consumers, who have held up relatively well on the luxury end, but are weakening under the strain of higher prices.
Total February retail sales rose 5.4% from a year earlier, slowing down from the 7.7% growth seen in January. While those gains look sizable, most of the increase was eaten away by inflation, which is running at about 6%.
Apparel and accessories specialty stores saw sales increase 4.3% from a year ago, while department stores were up 2.5%. Non-store retailers, a category dominated by e-commerce, saw sales rise 8.5%.
Matthew Shay, president and chief executive officer of the National Retail Federation, said: “While recent volatility in banking and financial markets is adding to economic uncertainty, the underlying fundamentals in the consumer economy remain on solid footing as jobs and wages are growing and inflation is trending down. Retailers continue to find innovative ways to meet consumers with the right products, offer the best prices to help families stretch their dollars and deliver great experiences.”