Shoppers 'Sidelined' In Long Retail Slump

A bankruptcy judge in Richmond will determine the fate of electronics retailer Circuit City. He will decide whether the company will be sold as a whole or be liquidated.
A bankruptcy judge in Richmond will determine the fate of electronics retailer Circuit City. He will decide whether the company will be sold as a whole or be liquidated. (By Jeremy Bales -- Bloomberg News)

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By V. Dion Haynes
Washington Post Staff Writer
Thursday, January 15, 2009

Americans drastically curtailed their shopping last month, according to government data released yesterday, and consumers who have come to expect big price cuts are unlikely to increase their spending anytime soon, analysts said, causing trouble for retailers in the months ahead.

"The recession will be longer, deeper and the recovery disappointing because consumers are sidelined," said Mark Zandi, chief economist for Moody's Economy.com.

December retail sales fell more than twice as forecast, dropping 2.7 percent from November, according to the Commerce Department.

October to December sales were down 7.7 percent from the same period in 2007, the worst quarter for sales in at least four decades. The drop in spending was accompanied by rapidly rising unemployment and an uptick in savings.

"This is a record decline since 1967," said Michael Niemira, chief economist for the International Council of Shopping Centers, a trade group. He projected the annual sales decline in 2009 would be 1.3 percent, compared with 0.4 percent in 2008.

"I think the storyline there is we had so much contraction in the last part of '08," Niemira said. "It's difficult to dig out of the hole."

Consumer spending, which represents two-thirds of gross domestic product, has in some recent slowdowns helped drive economic recoveries, analysts said. But the growing jobless rate means some consumers have less to spend and others are nervous about spending. Analysts are forecasting that in 2009 the unemployment rate will increase to at least 8.5 percent from 7.2 percent and the savings rate will rise to 5 percent from 2.8 percent.

"You're not going to get a recovery without a faster pace of consumer spending," said Alan Levenson, chief economist for T. Rowe Price Associates.

During some previous recessions, shoppers resumed buying such big-ticket items as appliances, cars and houses despite flat salaries. The difference was that credit was much more available to consumers than it is now.

Although increased federal spending from President-elect Barack Obama's stimulus package is expected to boost the economy, analysts said they think it will do little to help lift consumer confidence.

"I think the retail sector will lag the typical economic recovery," said John Silvia, chief economist for Wachovia.

"The game is different" now, Silvia added. "Consumers have less access to credit and don't have the income to support spending."


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