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Consumer Spending Wobbles, Apple Tumbles

Written By Brian Hicks

Posted September 29, 2008




On any other day, this story would be big news.

But with so much going on in the world financial markets—and none of it positive— a less than stellar consumer spending number has been pushed down to page 7.

According to the Commerce Department today, consumer spending came up short in August as households retrenched and stimulus checks fizzled. Consumer purchases for the month were flat over July, even as economists forecast a 0.2 increase as a follow up to a 0.2% jump for the prior month.

Meanwhile the same report also showed disposable income is still shrinking. Disposable income, or the money left over after taxes, decreased 0.9 percent after declining 0.8 percent the previous month.

In short, it was the worst of both worlds, as it underscored the obvious—-The consumer is totally strapped these days.

That’s the reality that helped to take a big bite out of Apple today, as the Street decided fewer consumers could afford cool this year.

From Reuters By Jim Finkle entitled: Apple tumbles on consumer spending concerns

“Apple Inc shares tumbled 16 percent on Monday, their biggest drop in seven years, amid concerns the maker of Mac computers and other consumer electronics will suffer as the economy slows.

Two brokerages cut their price targets, earnings forecasts and stock recommendations on the company, which also makes iPod music players and iPhones.

“We worry that consensus estimates have not been revised down to reflect slowing global consumer demand and that a broadly positive investment bias … limits upside to (Apple) shares over the next three to six months,” said Morgan Stanley analyst Kathryn Huberty.

She said that Wall Street remains overly bullish on shares of Cupertino, California-based Apple, with 27 of 32 analysts “overweight” on the stock. Morgan Stanley cut its price target to $115 from $178 and its recommendation on Apple to “equal-weight” from “overweight”.

RBC Capital analyst Mike Abramsky said in a note to investors that the percentage of consumers planning to buy a personal computer over the next 90 days who intend to get a Mac rather than PC from another manufacturer posted its biggest decline in the last two-and-a-half years from August to September.”

Meanwhile, here’s what’s going on over at Circuit City a mere 86 days before Christmas.

It’s from Bloomberg by Mark Clothier entitled: Circuit City Falls as Quarterly Loss Widens on Sales Decline

“Circuit City Stores Inc. reported a wider loss as sales fell for the sixth straight quarter and cash dwindled, forcing the electronics retailer to accelerate turnaround efforts as the key holiday selling season approaches. Its shares dropped as much as 12 percent.

Circuit City withdrew its forecast for the fiscal year ending Feb. 28. It suspended plans for any store openings for fiscal 2010 beyond commitments already made and may close unprofitable locations, while evaluating spending for this year and next. The chain has more than 1,480 stores.

A “significant decline” in customers pushed sales down 9.6 percent to $2.39 billion, and same-store sales fell 13 percent, Circuit City said. Larger rival Best Buy Co. and Wal- Mart Stores Inc. lowered prices on flat-panel televisions to lure customers spending tax rebate checks. Acting Chief Executive Officer James Marcum called Circuit City’s results “unacceptable.”

“It’s tough to handicap, but with the numbers we’re seeing and with the company withdrawing guidance and the balance sheet worsening, the situation is clearly becoming more dire,” said Anthony Chukumba, an analyst with FTN Midwest Securities. “The key question is, do they continue to get the support of their vendors? If their vendors stop supporting them, it could quickly spell `game over.”’


Now let’s see what we’ve got here. 

Higher prices—-check

Falling real incomes-check

Tighter credit—-check

Falling asset prices-check

The Christmas season this year is going to be ugly.