U.S. Retail Sales Plunge for Fourth Month
Saturday, November 15, 2008
Consumers ignored retailers' pleas last month to start holiday shopping early. They held on to their wallets and sent retail sales plunging 2.8 percent compared with the previous month, according to government data released yesterday.
The gloomy results marked the fourth consecutive month of decline as shoppers grapple with rising unemployment and a volatile stock market. Compared with October 2007, retail sales dropped a steep 4.1 percent, dragged down by a 23 percent falloff in auto sales.
Temptation seemed to be everywhere last month as retailers pulled out all the stops to lure customers. Wal-Mart kicked off the competition by slashing prices on toys, and Target and Toys R Us followed suit. Macy's began rolling out Christmas merchandise well before Halloween. Kmart began airing commercials for holiday layaway just as the fall leaves began to turn. But shoppers refused temptation.
"Consumers were already fighting to keep their heads above water in the third quarter, and in October they were thrown several heavy cement blocks," said Brian Bethune, chief U.S. economist for consulting firm IHS Global Insight.
Yesterday's dismal data comes on the heels of Thursday's jobs report by the Labor Department that showed the number of mass layoffs, which involve 50 or more people, rose to 1,330 during the third quarter, the highest level for that period since 2001. Unemployment edged up to 6.5 percent last month.
Those job losses coupled with tightening credit and falling home values have forced shoppers to drastically reduce their spending. The auto industry has been particularly hard hit. Earlier this month, Ford reported a $129 million third-quarter loss while GM bled $2.5 billion amid talks of possible bankruptcy. Even Toyota warned that its annual profits would hit a 13-year low.
Excluding autos, October retail sales fell 2.2 percent compared with the previous month, led by a double-digit decrease at gasoline stations as fuel prices declined. Electronics and appliance stores dropped 2.3 percent. Richmond-based Circuit City said in its bankruptcy filing this week that its customers have been unable to get credit for high-priced purchases such as flat-panel TVs, which in turn has decimated sales. Blockbuster lowered its guidance for annual sales and profits.
Department stores fell 1.3 percent as shoppers cut back on discretionary spending. J.C. Penney also reported today that third-quarter earnings fell by 52 percent to $124 million from $261 million last year.
"Consumers went into hibernation in October while concerns about the economy were at a peak," said Rosalind Wells, chief economist for the National Retail Federation, a trade group. "As economic uncertainty went from bad to worse, shoppers pulled back on everything but the basics to weather the storm."
One category that reported a gain in October over the previous month included restaurants and bars, and it was slight -- 0.3 percent.
The future for retailers and their customers does not look merry and bright, according to a new survey. The University of Michigan and Reuters said yesterday that their monthly consumer confidence index fell to 57.6 in October, a relative measure of how shoppers feel and a record 12.7 points below September. It is also 23.3 points below the same month last year. Since January, the index has fallen 41 percent, the largest drop on record and an indication that a long and deep recession is likely, the report said.
Nearly 10 percent of consumers said they had problems obtaining credit, according to the survey. More families reported having less income in October than any other month in the past 50 years of the survey.
"The more the purchase was associated with the use of credit, the more likely consumers voiced their intent to postpone the purchase," said Richard Curtin, director of the survey.
The flood of negative data is casting a shadow over the holiday season. Some industry experts are even forecasting a decline in spending this Christmas, when retailers rely on a boost in sales to pay for their many of their expenses over the rest of the year.
Britt Beemer, chairman of America's Research Group, a market research firm, predicts sales will fall by 1 percent, which would make be the first decline in 23 years. Richard D. Hastings, consumer strategist for investment bank Global Hunter Securities, sees an even more dire scenario: sales dropping by 6 to 8 percent.
"This year is different," he wrote in a presentation. "Rules are being ignored or revised as the industry passes through a threshold from which it will not return."