Transcripts

Wal-Mart's Happy Face May Not Smile Through The Summer

SUSIE GHARIB: Encouraging news today on the retail front. While the government reported that overall retail sales fell 0.2 of a percentage point in April, excluding autos, sales actually rose by 0.5 percent. Meanwhile the nation's largest retailer, Wal-Mart, said sales jumped almost 7 percent in its fiscal first quarter and earnings came in at $0.76 a share, topping analyst estimates by a penny. As Scott Gurvey reports, some economists say today's data suggest the U.S. may not be in such bad shape after all.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The economy may be sluggish, but today's data indicate reports of its death are greatly exaggerated. It is true that sales of automobiles fell off a cliff. You have to go back 10 years to find a weaker auto sales report. But excluding autos, retail sales rose in April, doing much better than most economists had forecast. There was even a bounce back for housing related items, building materials, furniture and appliances. Economist Cary Leahey of Decision Economics, says the data implies the nation will avoid a recession, even though employment is falling.

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS: One can, might argue that perhaps people were feeling a little bit better and spent because they were spending in anticipation of the rebate check to come, but still this was a number that was pretty good and gets you off to at leas a decent start in the second quarter. And if consumer spending is up 2 percent at an annual pace in the second quarter, it's very hard for GDP growth to be negative.

GURVEY: The world's biggest retailer echoed that retail sales report with its latest earnings. Wal-Mart reported higher profits, but was very conservative in its guidance for the second quarter and the full year. It predicts sales could be flat through July. Wall Street was disappointed by the forecast, although retail analyst Neil Currie of UBS says it was to be expected. UBS has done investment banking and other business with Wal-Mart over the past year.

NEIL CURRIE, RETAIL ANALYST, UBS: In such an uncertain economy, I think it's prudence to be conservative. However, they're entering the second quarter with comps of 3 percent, with traffic that is actually positive year over year. And that's the first time we've seen that in a long time. And also apparel which has been a drag on sales the past couple of years, is actually seeing some major improvements and should turn positive soon. So I think the 0 to 2 percent sales guidance is very conservative and they should beat that.

GURVEY: Many economists say today's data give the Federal Reserve further reason to stay on the sidelines for a while, waiting to judge the effects of recent interest rate cuts and tax rebate checks on consumer spending and the economy. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.