Retail sales dive as holiday spending slumps
Wed Jan 14, 2009 3:22pm EST
By Lucia Mutikani
WASHINGTON (Reuters) - Sales at retailers dropped a steep 2.7 percent in December, government data showed on Wednesday, as a deteriorating economy forced consumers to cut back on spending during the key holiday period.
The dour data suggested fourth-quarter economic growth probably shrank more sharply than had been thought and a trend that likely continued into the new year, fanning fears the year-long recession has the potential to be the longest and deepest since the 1981 downturn, which lasted 16 months.
"Expect fourth quarter GDP (gross domestic product) to be very weak. Retail sales are one of the primary inputs to GDP and the sharp drop in consumer spending suggests that GDP could have fallen as much as four percent," said Kathy Lien, director of currency research at GFT Forex in New York.
The Commerce Department said total retail sales fell to a seasonally adjusted $343.2 billion last month, taking sales for the whole of 2008 down 0.1 percent. That was worse than analysts' median forecast for a 1.2 percent in December sales.
December's drop was the biggest since October last year when sales fell 3.4 percent. Compared to the same period a year earlier, sales plunged by a record 9.8 percent, beating the previous all-time drop of 8.2 percent in November.
Stocks on Wall Street tumbled, with the Dow Jones industrial average slumping to mid-December levels, while Treasury debt prices surged, tapping a safe-haven bid from the grim data. The dollar rallied against the euro after ratings agency Standard & Poor's downgraded Greece's debt rating.
Falling household wealth, rising unemployment, tight credit conditions and a murky economic picture have forced consumers to cut back sharply on spending, which accounts for about two thirds of U.S. economic activity.
"The December report is another stark reminder of the extensive damage to consumer confidence and spending from the deepening recession," said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts.
Excluding motor vehicles and parts, sales tumbled a record 3.1 percent after a 2.5 percent fall in November and were way below analysts' expectations for a 1.3 percent fall.
Total sales, excluding autos, rose 3.0 percent in 2008.
Analysts, however, were encouraged that steps by the Federal Reserve -- the U.S. central bank -- to flood financial markets with cash and the reduction of its benchmark interest rates to virtually zero were starting to show results.
Mortgage applications rose last week, spurred by a surge in refinancing, but low mortgage rates have yet to fuel demand for loans to buy homes. The Mortgage Bankers Association's index measuring mortgages to buy homes fell 14.1 percent last week.
"With credit markets now beginning to thaw, the pace of sales declines should at least ease in the months ahead. Unfortunately, leading indicators of the labor market continue to point south while households' wealth, income, savings and credit remain constrained," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.
BANKRUPTCY FILINGS MAY RISE
Analysts said plunging retail sales could result in more retailers filing for bankruptcy. On Wednesday, Nortel Networks Corp, North America's biggest telephone equipment maker, filed for bankruptcy.
Wed Jan 14, 2009 3:22pm EST
By Lucia Mutikani
WASHINGTON (Reuters) - Sales at retailers dropped a steep 2.7 percent in December, government data showed on Wednesday, as a deteriorating economy forced consumers to cut back on spending during the key holiday period.
The dour data suggested fourth-quarter economic growth probably shrank more sharply than had been thought and a trend that likely continued into the new year, fanning fears the year-long recession has the potential to be the longest and deepest since the 1981 downturn, which lasted 16 months.
"Expect fourth quarter GDP (gross domestic product) to be very weak. Retail sales are one of the primary inputs to GDP and the sharp drop in consumer spending suggests that GDP could have fallen as much as four percent," said Kathy Lien, director of currency research at GFT Forex in New York.
The Commerce Department said total retail sales fell to a seasonally adjusted $343.2 billion last month, taking sales for the whole of 2008 down 0.1 percent. That was worse than analysts' median forecast for a 1.2 percent in December sales.
December's drop was the biggest since October last year when sales fell 3.4 percent. Compared to the same period a year earlier, sales plunged by a record 9.8 percent, beating the previous all-time drop of 8.2 percent in November.
Stocks on Wall Street tumbled, with the Dow Jones industrial average slumping to mid-December levels, while Treasury debt prices surged, tapping a safe-haven bid from the grim data. The dollar rallied against the euro after ratings agency Standard & Poor's downgraded Greece's debt rating.
Falling household wealth, rising unemployment, tight credit conditions and a murky economic picture have forced consumers to cut back sharply on spending, which accounts for about two thirds of U.S. economic activity.
"The December report is another stark reminder of the extensive damage to consumer confidence and spending from the deepening recession," said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts.
Excluding motor vehicles and parts, sales tumbled a record 3.1 percent after a 2.5 percent fall in November and were way below analysts' expectations for a 1.3 percent fall.
Total sales, excluding autos, rose 3.0 percent in 2008.
Analysts, however, were encouraged that steps by the Federal Reserve -- the U.S. central bank -- to flood financial markets with cash and the reduction of its benchmark interest rates to virtually zero were starting to show results.
Mortgage applications rose last week, spurred by a surge in refinancing, but low mortgage rates have yet to fuel demand for loans to buy homes. The Mortgage Bankers Association's index measuring mortgages to buy homes fell 14.1 percent last week.
"With credit markets now beginning to thaw, the pace of sales declines should at least ease in the months ahead. Unfortunately, leading indicators of the labor market continue to point south while households' wealth, income, savings and credit remain constrained," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.
BANKRUPTCY FILINGS MAY RISE
Analysts said plunging retail sales could result in more retailers filing for bankruptcy. On Wednesday, Nortel Networks Corp, North America's biggest telephone equipment maker, filed for bankruptcy.
