Retail sales drop 0.4 percent
WASHINGTON (AP) - January 15, 2008 The Commerce Department reported Tuesday that the drop in retail
sales, which followed a brisk 1 percent gain in November, marked
the worst showing since June, when merchant sales declined by 0.8
percent.
Shoppers turned into penny-pinchers under the strains of a
deteriorating job market, expensive energy bills and a persistent
housing slump that has weakened home values and propelled
foreclosures to record highs.
"Consumers held tight to their wallets in December, raising
questions about whether household spending will be enough to keep
us out of a recession," said Joel Naroff, president of Naroff
Economic Advisors.
In another report, the Labor Department said wholesale prices
dipped 0.1 percent in December, but were up 6.3 percent for all of
2007, the biggest annual gain in 26 years, mostly reflecting higher
energy costs.
On Wall Street, stocks tumbled in morning trading. The Dow Jones
industrials were down more than 190 points.
Excluding sales of automobiles, which can swing widely from
month to month, sales at all other retailers also fell by 0.4
percent in December, the biggest decline since August.
The report was much weaker than many economists were expecting.
They were forecasting overall sales to be flat last month and for
sales - excluding autos - to dip by 0.1 percent.
Odds that the country could slide into a recession this year
have grown.
The big worry is that consumers will keep on slicing spending,
plunging the economy into a recession.
To bolster the economy, Federal Reserve Chairman Ben Bernanke
pledged last week to aggressively lower interest rates. Many
economists predict the Fed will slash its key rate, now at 4.25
percent, by a bold half-percentage point later this month. The Fed
cut rates three times last year in an effort to induce consumers to
boost spending, which would energize overall economic activity.
Even so, a housing slump, weaker home values, harder-to-get
credit and high energy prices all "seem likely to weigh on
consumer spending as we move into 2008," Bernanke said last week
as he warned that downside risks to economic growth have become
"more pronounced."
Many analysts predict upcoming reports will show the economy
grew at a feeble pace of just 1.5 percent or less in the final
three months of last year and will be weak in the first three
months of this year as consumers - major shapers of overall
economic activity - tighten their belts.
Adding to worry about how consumers will hold up: Consumer
confidence, as measured by the RBC Cash Index, fell in January to
its lowest point on record dating back to 2002. Worries about jobs,
energy bills and home foreclosures darkened people's feelings about
the country's economic health and their own financial well-being.
Against this backdrop, the White House and the
Democrat-controlled Congress are exploring ways - including the
possibility of temporary tax rebates - to get money quickly into
the hands of consumers and help stimulate the economy.
For all of last year, retail sales rose by 4.2 percent. That was
down from a 5.9 percent increase in 2006 and marked the smallest
rise since 2002, when sales went up by just 2.4 percent as the
economy was recovering from the 2001 recession.
"Higher prices for energy and food, together with falling
confidence, are hammering discretionary spending," said Ian
Shepherdson, chief economist at High Frequency Economics.
The weakness in the retail sales report was fairly widespread,
underscoring the stresses on consumers.
Sales at building and garden supply stores, for example, fell
2.9 percent in December, the most since February 2003. Purchases of
electronics and appliances dropped 1.9 percent last month, the most
in nearly two years.
Clothing sales declined by 2 percent, the most since September
2005. Sales of sporting goods, music and books also fell by 2
percent. Car sales and department store sales each dipped 0.4
percent. Gasoline station sales dropped 1.7 percent.
A few bright spots: sales at furniture stores rose 0.6 percent.
Sales at food as well as health and beauty stores each rose by 0.7
percent and sales at bars and restaurants increased 0.2 percent.
There were a number of reasons why shoppers turned cautious.
One big reason is a weakening job market. Hiring practically
stalled in December, pushing the unemployment rate to 5 percent, a
two-year high.
Another concern is the meltdown in the housing market, which has
dragged down home values and made people feel less wealthy.
Harder-to-get credit has made it difficult for some to make
big-ticket purchases. And, high energy prices are squeezing wallets
and pocketbooks.
Oil prices recently surged past $100 a barrel, though the price
has moderated somewhat. Gasoline has topped $3 a gallon. Those high
energy costs for fueling cars and heating homes are leaving people
with less money to spend elsewhere, analysts say. In turn, prices
for some other goods and services have risen.
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On the Net:
Retail Sales: http://www.economicindicators.gov/