Sluggish retail sales end '07
NEW YORK (AP) - January 10, 2008 The Commerce Department's sales report Tuesday was just the
latest in a string of weaker-than-expected numbers that have
economists worried that the current economic expansion, now in its
seventh year, could be in danger of faltering.
Analysts said the worry is that all the problems weighing on the
economy could prompt consumers - who account for two-thirds of
economic activity - to sharply limit or even stop shopping.
Already, consumer confidence has slipped significantly amid the oil
price spiral and the continuing housing slump. At the same time,
some of the nation's biggest financial institutions have reported
billions of dollars in losses stemming from a meltdown in the
mortgage market.
"There is certainly enough out there to make people worry,"
said David Wyss, chief economist at Standard & Poor's in New York.
"We think we are getting very close to a recession."
That view was echoed by former Federal Reserve Chairman Alan
Greenspan, who said the country may already be in a downturn.
"The symptoms are clearly there," he said in a Wall Street
Journal interview published Tuesday. "Recessions don't happen
smoothly. They are usually signaled by a discontinuity in the
market place and the data of recent weeks could very well be
characterized in that manner."
Stock prices, one of the leading indicators used to judge the
course of the economy, continued their 2008 swoon.
The Dow Jones industrial average was down more than 200 points
in mid-afternoon trading after Citigroup Inc. announced it had
sustained a $10 billion loss in the fourth quarter, reflecting in
part the souring mortgage market.
Even before the problems with December retail sales, businesses
were seeing inventories rise, including a 0.4 percent increase in
November. An unwanted rise in inventories can translate into future
production cutbacks by factories. A key gauge of manufacturing
activity gave a recession reading earlier this month, falling to
its lowest level in five years.
In other news Tuesday, the Labor Department said that wholesale
inflation, which had shot up in November by 3.2 percent, the
largest amount in 34 years, actually dipped by 0.1 percent in
December. That reflecting a big drop in energy costs at the time.
However, for all of 2007, wholesale prices rose by 6.3 percent. It
was the biggest annual increase in 26 years.
Analysts said the dip in wholesale prices for the month of
December, if followed by a benign report on Wednesday on consumer
prices, should give the Federal Reserve the leeway it needs to more
aggressively attack the economic slowdown with interest rate cuts.
Federal Reserve Chairman Ben Bernanke last week sent a strong
signal that the central bank is more worried at the moment about
weak growth than inflation, prompting markets to believe the Fed
will cut a key interest rate by a half-point when Fed officials
meet at the end of this month.
Bernanke, who will be quizzed on the economic outlook during an
appearance Thursday before the House Budget Committee, cited
various statistics including a big rise in unemployment as
indications that "the downside risks to growth have become more
pronounced."
Unemployment jumped from 4.7 percent in November to 5 percent in
December, the biggest one-month leap since October 2001 when the
country was still reeling from the shocks of the terrorist attacks.
Many economists believe that economic growth, which was powering
ahead at a 4.9 percent rate in the third quarter, thanks to
continued strong consumer spending, slowed to a barely discernible
1 percent rate in the final three months of last year and may now
be dipping into negative territory.
To keep the gross domestic product from declining for two
consecutive quarters - one rule of thumb for a recession - will
require quick action by the Fed and help from Congress and
President Bush, many analysts believe.
Bernard Baumohl, director of the Economic Outlook Group, said
Congress must act "quickly and boldly" to pass an $85 billion
stimulus package that should include a $600 per household tax
rebate.
Bush has said he is considering an economic stimulus package.
With the weakening economy rising to the top of voters' concerns,
both Democratic and Republican presidential candidates are not
waiting to put forward their own proposals.
The 0.4 percent fall in retail sales, which followed a 1 percent
jump in November sales, reflected widespread weakness. Sales of
clothing, sporting goods, and building supplies all fell. Some
analysts said the December performance was depressed in part by the
fact that Thanksgiving came early this year, pushing some Christmas
sales into November.
The 6.3 percent increase in the Producer Price Index, which
measures inflation pressures before they reach the consumer,
reflected the fact that energy prices rose by 18.4 percent last
year after having declined by 2 percent in 2006.
However, core inflation, which excludes energy and food, was
considerably more moderate, rising by 2 percent last year, the same
as in 2006. The Fed is closely watching core prices for any signs
that the price pressures being seen in energy and food are starting
to spread to other parts of the economy.
For December, the 0.1 percent drop in overall prices reflected a
1.9 percent plunge in energy and a 1.3 percent rise in food costs.
Outside of food and energy, core inflation posted a moderate 0.2
percent increase.