Thursday, January 15, 2009

U.S. Economy: Retail Sales Decline for a Sixth Month

U.S. Economy: Retail Sales Decline for a Sixth Month

By Bob Willis

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Sales at U.S. retailers fell more than twice as much as forecast in December as job losses and the lack of credit led Americans to cut back on everything from car purchases to eating out.

The 2.7 percent slump marked the sixth straight month of declines, the longest string since comparable records began in 1992, the Commerce Department said today in Washington. Labor Department data showed the global collapse in commodities caused prices of goods imported by the U.S. to fall for a fifth month.

Today’s sales figures indicate the hit to spending in the recession is even deeper than estimated, and spurred a sell-off in stocks. The loss of 2.6 million jobs and declining home and stock values are squeezing households, hurting retailers from Wal-Mart Stores Inc. to Tiffany & Co., which today said its holiday sales fell 21 percent and cut its earnings forecast.

“There is a major retrenchment going on,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “All that policy can do at this stage is cushion this. You can’t short-circuit it.”

Commerce also reported that inventories at all businesses in November dropped 0.7 percent, more than economists estimated and the third straight decrease. A 1.7 percent decline in stockpiles at retailers, as furniture stores and auto dealers cut back, paced the overall slump.

Stocks Slump

Treasuries rallied, sending yields on benchmark 10-year notes down to 2.20 percent at 4:26 p.m. in New York, from 2.29 percent late yesterday. The Standard & Poor’s 500 Stock Index slid 3.4 percent to close at 842.62.

Retail sales were projected to fall 1.2 percent after an originally reported 1.8 percent drop the prior month, according to the median estimate of 78 economists in a Bloomberg News survey. Forecasts ranged from declines of 3.5 percent to 0.3 percent.

Purchases excluding automobiles slumped 3.1 percent, the most since records began. The decline also exceeded the median estimate of economists surveyed that projected a 1.4 percent drop.

The decline in purchases and lack of credit caused a further weakening in the economy across almost all areas of the country in the past month, the Federal Reserve said today in its regional business survey. Retailers engaged in “deep discounting” during the holidays, with “sizable” price cuts, while wage pressures were “largely contained,” the Fed report found.

Obama Plan

Today’s sales report will serve as a reminder to lawmakers of the urgency to enact President-elect Barack Obama’s stimulus proposals to combat the recession.

Obama, who takes office Jan. 20, is proposing a two-year recovery plan that includes about $300 billion in tax cuts for individuals and businesses and infrastructure spending aimed at creating or saving 4 million jobs.

“It’s not too late to change course -- but only if we take immediate and dramatic action,” Obama said in his weekly radio address on Jan. 10.

Labor Department figures showed the import-price index decreased 4.2 percent, less than economists forecast, after a revised 7 percent drop in November. Prices from a year earlier were down 9.3 percent, the largest year-over-year decline since the index was first published in 1982. Prices excluding fuels dropped 1.1 percent last month.

“This is a reflection of the synchronicity of a slowdown in demand worldwide,” said Jonathan Basile, an economist at Credit Suisse Holdings USA Inc. in New York.

First Drop

Retail sales fell 0.1 percent for all of 2008 compared with the prior year, the first decrease in the Commerce Department’s records. Comparable data only go back to 1992 because government economists reformulated their retail-sales figures earlier this decade, and didn’t revise historical records beyond that year.

November’s decline was revised to 2.1 percent from a previously estimated fall of 1.8 percent.

Today’s report showed declines in 11 of the 13 major categories tracked by the government, led by a 16 percent plunge at gasoline service stations that partly reflected the slump in fuel costs. The drop at grocery stores was the biggest since April 2002 and the decrease at restaurants was the largest since the terrorist attacks in September 2001.

Only health and beauty stores and a miscellaneous category saw increases last month.

Auto Slump

Purchases of expensive goods are falling as banks restrict access to credit. Auto sales fell 36 percent in December from the same month last year, capping the industry’s worst year since 1992.

Same-store sales dropped 2.2 percent in the last two months of 2008, making it the worst holiday shopping season in almost four decades of record keeping, the International Council of Shopping Centers said last week.

The first half of this year will also be “extraordinarily challenging,” Wal-Mart Chief Executive Officer H. Lee Scott told a retailers’ convention this week in New York City. “Some people are giving up eating out; some people are giving up movies; some people are giving up other things like shopping,” Scott said. “Those are fundamental changes that will continue.”

Knoxville, Tennessee-based Goody’s LLC, operator of a 282- store U.S. clothing chain, and Fresno, California-based Gottschalks Inc., owner of department stores in six western states, sought bankruptcy protection after sales slumped.

‘No Other Recourse’

“Persistent challenges in the economy and recent unexpected reductions to our borrowing capacity as a result of tightening credit markets have left us with no other recourse,” Jim Famalette, Gottschalks’ chairman and chief executive officer, said in a statement.

Americans are scrimping as unemployment last month rose to 7.2 percent, the highest level in almost 16 years. Job losses are likely to continue for most of this year, economists said.

The plunge at filling stations in part reflected a 43 cent- per-gallon drop in the average cost of gasoline last month. Excluding gas, retail sales fell 1.4 percent.

The U.S. economy shrank at a 0.5 percent annual pace from July through September as Americans reduced purchases at a 3.8 percent annual rate, the first decline in consumer spending since 1991 and the biggest in 28 years, the government said last month.

The economic slump probably worsened in the fourth quarter as declines in business investment and construction intensified and consumers continued to pull back.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales dropped 1.4 percent, after a 0.1 percent increase in the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.

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