Washington — First, Americans quit buying homes. Now, they may have stopped fixing and furnishing them too.
Home Depot Inc. reported a 3-per-cent drop in profit in the three months that ended in October, amid mounting evidence that the U.S. housing slump is getting worse.
“I don't think we've seen the bottom yet, and I don't see anything that says it's going to get significantly better in 2007,” said Bob Nardelli, Home Depot's chairman and chief executive officer.
Mr. Nardelli said job losses in the home construction market are the worst he's seen in 35 years, and the pain is starting to spread to the home renovation market.
“The loss of jobs ... in the home construction market is at unprecedented levels,” Mr. Nardelli told analysts on a conference call Tuesday. “Home builders [are] basically writing off earnest money and liquidating land. We're starting to see a lot of that unemployment find its way over to the small repair and remodel contractors.”
Problems in the housing sector have also begun to affect how consumers spend their money. In October, U.S. retail sales fell at an annual rate of 0.2 per cent — the third consecutive monthly decline, according to a U.S. Commerce Department report Tuesday.
The decline was heavily influenced by lower gasoline prices, which resulted in less revenue for gas stations.
But there were also sharp declines in building materials (down 0.3 per cent), furniture (down 0.7 per cent) and department store sales (down 0.7 per cent). Over the past three months, sales of building materials have plunged at an annual rate of 10.6 per cent.
“The housing slowdown left its grimy fingerprints all over this report,” BMO Nesbitt Burns economist Douglas Porter said in a note to clients.
Lower gasoline prices don't seem to be causing consumers to spend elsewhere, as many economists had predicted. Even if you strip out volatile gas, food and auto sales, all other retail sales rose a meagre 0.1 per cent October.
“People are being very cautious,” said Ian Shepherdson, chief North American economist at High Frequency Economics. “The housing crunch is now hurting.”
At least two other bellwether U.S. retailers — Wal-Mart Stores Inc. and Target Corp. — reported Tuesday that their sales and profit remain strong, in spite of the problems in the housing sector.
But executives at Wal-Mart, the world's largest retailer, acknowledged that sales in the third quarter were disappointing and it is already vowing its biggest-ever discounting binge on items such as toys and electronics to keep cash registers ringing this Christmas.
“This season, no one will doubt Wal-Mart's leadership on price and value,” Wal-Mart CEO Lee Scott said.
Wal-Mart's profit rose to $2.65-billion (U.S.) or 63 cents a share in the third quarter that ended Oct. 31, up from $2.37-billion or 57 cents a year earlier. That was slightly below what analysts had expected, according to Reuters.
Sales were up 12 per cent to $83.5-billion. But those figures include sales at newly opened stores and foreign stores. Sales at U.S. stores that have been open at least a year were up just 1.5 per cent, and Mr. Scott said fourth-quarter sales would rise just 1 to 2 per cent.
Target, which caters to less price-sensitive shoppers than Wal-Mart, appears to be weathering the retail uncertainty a little better.
The retailer reported a 16-per-cent profit jump in the third quarter on strong sales. Revenue rose 11.2 per cent to $13.5-billion. Sales at stores open at least a year — the retail benchmark — rose 4.6 per cent.
