More signs of a slowdown emerged Thursday, with a major retailer announcing lower-than-expected sales and the housing slump deepening. At the same time, spiking gasoline prices pushed consumer inflation higher in October.
The Federal Reserve has predicted that the economy's growth will slow, but not freeze up, through the end of the year and into 2008. Business and consumers face tighter credit markets, rising energy costs and dropping home sales and prices.
J.C. Penney jcp on Thursday announced a 9% drop in third-quarter profit, and cut its outlook for the fourth quarter, adding to concerns that the important holiday shopping season could be lackluster this year.
J.C. Penney CEO Myron Ullman III told investors during a conference call the slowdown reflected broader economic factors. One area of decline was home furnishings, tied to the slowdown in housing.
"It's hard to sell window coverings to homes that aren't being built," Ullman said. "It's not as if we got dumb all of a sudden."
Separately, Wells Fargo wfc CEO John Stumpf told a conference in New York the housing downturn is the worst since the Great Depression and has a ways yet to run. Though Wells Fargo is the nation's second-largest mortgage lender, he said it's in good shape to weather the problems, despite "elevated" credit losses from home-equity loans into 2008, Reuters said.
Underscoring the housing market problems, real estate analysis firm DataQuick Information Systems said home sales in the San Francisco Bay Area were the lowest in decades in October, down 35.7% from a year ago.
Even with the economy slowing, inflation ticked up in October, the Labor Department said. The consumer price index, which measures retail inflation, rose 0.3% in the month, following a similar rise in September.
Since January, consumer inflation has been 3.6% at an annual rate, compared with 2.5% for all of 2006. Energy prices are up 12.3% since January, with petroleum-based energy prices up 20.6%. Food inflation has been advancing at a 5.5% rate, up from 2.1% for 2006.
David Rosenberg, North American economist for Merrill Lynch, predicted inflation pressures would persist, but they wouldn't prevent the Fed from cutting interest rates if needed to buoy the economy.