Retail sales plunge by largest amount on record
Story By: MSNBC and Associated Press
Source: MSNBC
Retail sales plunged by a record amount in October as shoppers reined in spending with home prices falling, although plunging gasoline prices also reduced outlays by consumers.
Sales slumped 2.8 percent last month to a seasonally adjusted $363.7 billion, the largest decline since the series began in 1992, the Commerce Department said. The previous record was a 2.65 percent drop in November 2001 in the wake of the terrorist attacks that year.
Retail sales fell 1.3 percent in September.
Meanwhile, consumer confidence rose unexpectedly, according to a survey released Friday, as tumbling gasoline prices offset worries about unemployment and recession.
However, business inventories dropped in September by the greatest amount in more than three years, a possible sign of falling confidence in the face of a worsening economic slump.
Stock prices fell in early trading as investors cashed in some gains after a sharp rally Thursday.
The decline in retail sales was led by a huge drop in auto purchases, but sales of all types of products from furniture to clothing fell as consumers retrenched.
The 2.8 percent drop marked the fourth consecutive monthly decline in retail sales and was much bigger than the 2 percent fall economists expected.
“What you are seeing now is the turmoil in the credit and funding markets playing out into the consumer sector,” said Kevin Flanagan, fixed income strategist, global wealth management at Morgan Stanley in Purchase, New York.
The weakness was led by a 5.5 percent plunge in auto sales, the biggest drop since August 2005. Auto companies reported unit sales fell to the lowest level in 17 years as potential buyers, frightened by all the turmoil on Wall Street, stayed away from auto showrooms.
Excluding autos, retail sales fell by 2.2 percent, also a record decline, underscoring the widespread weakness last month.
Consumer spending accounts for two-thirds of total economic activity, and weakness in this area was the major factor dragging down overall economic growth in the July-September quarter. The gross domestic product fell 0.3 percent at an annual rate during the third quarter, the strongest signal yet that the country has fallen into a recession.
In a bit of bright news, consumer sentiment edged up in early November. The Reuters/University of Michigan Surveys of Consumers said its index of confidence rose to 57.9 from 57.6 in October. Despite the rise, sentiment remains at depressed levels, with the index below the lowest levels hit during the depths plumbed during the last two recessions.
"Lower gas prices and sizable discounts at retailers helped to slightly improve consumers' assessments of current economic conditions, while higher unemployment and a deepening recession dimmed their expectations for future gains," the report said.
The index came in above economists' expectations of 56.0, according to the median of forecasts in a Reuters poll.
Many economists believe the nation's GDP will drop sharply in the current October-December period and will continue falling through the first two quarters of next year. They are expecting that the financial crisis, the worst in seven decades, will produce the country’s worst recession since the 1981-1982 downturn.
The government reported last week that the unemployment rate shot up to 6.5 percent in October, and many economists believe it will top 8 percent before the economy starts to mount a sustained rebound.
The retail sales report showed that sales at general merchandise stores, the category that includes big chains such as Wal-Mart and department stores, fell by 0.4 percent, while sales at specialty clothing stores were down a bigger 1.4 percent.
Circuit City, the No. 2 U.S. consumer electronics retailer, filed for bankruptcy on Monday just weeks before the start of the crucial holiday shopping season, as its vendors tightened credit and shoppers closed their wallets.
Sales at furniture stores dropped by 2.5 percent, with sales at appliance stores and sport goods stores also showing declines.
One of the few areas to show an increase was the category that includes restaurants and bars which posted a small 0.3 percent gain, perhaps reflecting the desire of some to seek solace during turbulent economic times.
Wall Street reacted badly to the news. The Dow was off more than 300 points earlier, but is now down about 100.
