Retail Sales Take December Plunge

2.7 Percent Drop More Than Double What Wall Street Expected; Stocks Plummet Nearly 250

(CBS/AP)  Wall Street expected December to bring bad news for retailers - but not this bad. Retail sales plunged more than double what analysts predicted, marking a record sixth straight monthly decline as consumers tightened their purse strings amid a deepening recession, a severe credit crunch and a battered job market, none of which are likely to ease anytime soon.

The Commerce Department reported Wednesday that retail sales dropped 2.7 percent last month. Wall Street expected a 1.2 percent decline.

"The numbers have to be construed as terrible," retail analyst Ken Perkins told CBS Radio News. "They were way below the consensus."

For the entire year, retail sales were down 0.1 percent, a sharp turnaround after a 4.1 percent gain in 2007. It was the first time the annual retail sales figure has fallen on government records going back to 1992. Before 2008, the weakest year for retail sales had been an increase of 2.4 percent in 2002, the year after the 2001 recession.

The weakness in consumer spending has been a prime contributing factor to the economy's current swoon and analysts say they don't see that turning around soon. They predict the current recession, already the longest in a quarter-century, will continue at least until the second half of this year.

"It's got to be pretty dire, at least for the first half of this year," Perkins told CBS Radio News. "There really are no stimulus or incentives to spend on the part of consumers. Credit remains tight, if you're not refinancing your home."

On Wednesday, regional department store chain Gottschalks Inc. put itself up for sale and said it had filed to reorganize in a Chapter 11 bankruptcy. The Fresno, Calif.-based company said it has negotiated $125 million debtor-in-possession financing from a group of lenders led by GE Capital, which if approved in bankruptcy court, will fund its employee wages and benefits, some vendor payments and other operating expenses while it reorganizes.

"Anybody in the department store space right now has been struggling for quite a long time and if you're a regional player in that field … there's some pressure there," Perkins told CBS Radio News.

Last week, Macy's Inc. said it will close 11 underperforming stores in nine states, affecting 960 employees. The department-store operator also lowered its forecast for the fourth quarter after one of the weakest holiday seasons in years.

The 2.7 percent December plunge in sales, which followed a November drop revised downward to 2.1 percent, confirmed private sector reports that retailers had suffered their worst holiday shopping season since at least 1969.

Meanwhile, businesses slashed inventories in November by the largest amount in seven years as they scrambled to cope with a record plunge in sales.

The Commerce Department says that inventories were reduced by 0.7 percent in November, even worse than the 0.5 percent drop analysts expected. It marked the third straight month that businesses have cut their stockpiles, the longest stretch since four straight months of reductions that ended in August 2003.

The big drop in inventories in November reflected a record 5.1 percent drop in total business sales that followed a 3.9 percent decline in October.

Since consumer spending accounts for about two-thirds of total economic activity, the weakness is a major factor depressing overall economic activity. The country fell into a recession in December 2007, reflecting a severe slump in housing.

The economy's weakness intensified in the fall when the financial system was engulfed in its biggest crisis since the 1930s as billions of dollars of losses on mortgages and other types of loans forced the government to put together a massive rescue effort to try to get banks to resume more normal lending.

President-elect Barack Obama has promised to push a sweeping economic stimulus program of around $800 billion through Congress in the next few weeks, but even with that assistance, economists say the country is facing a prolonged period of weakness.

Many analysts believe the overall economy, as measured by the gross domestic product, plunged at an annual rate of 6 percent in the just-completed fourth quarter after dropping by 0.5 percent in the third quarter.

On Wall Street, stocks fell sharply following the news. The Dow Jones industrial average was down about 240 points in afternoon trading.

For December, virtually all areas of retail sales showed declines. Auto sales fell by 0.7 percent and are down a huge 22.4 percent from a year ago.

Excluding autos, retail sales were down a record 3.1 percent. This reflected declines at department stores, specialty clothing stores, furniture stores, hardware stores, restaurants and service stations. The 15.9 percent drop at service stations was heavily influenced by the steep decline in gasoline prices during the month.

Automakers closed out a dismal 2008 with General Motors Corp. having its worst year in nearly a half-century and both GM and Chrysler LLC having to take emergency loans from the government's bailout fund.

Last week, the nation's major chain stores reported dismal sales results for December. Even Wal-Mart Stores Inc. reported smaller gains than economists expected. Among the retailers reporting big declines were Sears Holdings Corp., which operates Sears and Kmart stores, luxury retailer Saks Inc. and Gap Inc.

Departing Wal-Mart Chief Executive Lee Scott on Monday told the annual National Retail Federation convention that while a new economic stimulus package from the government will have "some impact" on the economy, he doesn't expect a quick rebound since "fundamental changes" in consumer behavior - an increased focus on saving and less buying - will likely linger.

Scott, who was making his last public speech as CEO and president of the world's largest retailer, predicted that the first half of 2009 will be "extremely challenging," and said he hopes the second half would be a little easier.

[schoolmarm22]

Unfortunately, people in this country are having to make very tough decisions based on actual needs intead of luxury items. It doesn''t take an overpaid government taskforce to figure out that Americans have to pay for food, medicine, shelter, and utilities before they head out to the mall and get that new outfit or off to a restaurant for a pricey meal. This is just the new reality!! Needs come before wants. There are so many people who are losing their jobs and are trying to retain their homes that retail shopping is being put on the back burner. Since there is no clear answer about when the economy will pick up, consumers have to be much more careful of how they spend their dollars. We should all pay more attention when our elderly people tell stories of how they coped with the Great Depression, because it''s very possible that it will happen again.

[b4ucmyi]

This is what happens when people actually have to pay for their Christmas gifts, instead of rolling the charge into their mortgage.

[tmittelstaed]

If the retailers want consumers to spend money in their stores they simply need to cut their expenses and pass the savings to customers in the form of lower prices. Retailers can cut store hours and cut employee hours and lay off people and cancel store expansion plans and such. This isn''t rocket science.
Unfortunately in retail the focus in the last 20 years has been to increase sales with gimmicks. Look at all the stores today that lease property. Years ago the usual thing was for the store owner to OWN their property outright - no mortgage payment or lease payment which cost would need to be tacked on to the prices.

[cmc1227]

irmcvet971,

I need to speak with the people in charge at your asylum; you spend way too much time on the Internet. And, what is with this "Sieg Heil" cr*p, are you having the delusions that your a Nazi again? Maybe that frontal lobotomy is not a bad idea for you after all.

[ddaryl1]

No jobs, stangnate wages, dissappearing benefits, defunct pension plans. 401K plans raped by market conditions. Housing market in the crapper.

Guess what people the death of capitalism is close at hand. They will prop it up as best they can and try to keep it running but the burden is too much and the inevitiable collapse is coming. All brought to you by one of humanities biggest flaws... GREED

[mytoosense]

This is Too funny.

Our government and our corporate leaders made it very clear, through their policies this past decade, that they could give two hoots about the economic health of the middle class of America.

Not spending money and voting Democrat seems to be the only F-YOU they seem to hear.

I will continue doing both until the active screwwing of the middle class ends, I hope it''s soon.

I also believe that the number of Americans who are protesting their ill treatment by not spending money is grossly under estamated.

[win4usa]

People shop at stores that they get the best deals. Some people shop at Wal-mart out of survival. People can''t spend money they don''t have. No jobs, no money.

[irmcvet971]

Obama campaigns on fiscal responsibility, gets elected, gets briefed for a few hours every day, and is now asking for the next $350 Billion dollar installment of the bailout money every American does not want to give out? The largest annual deficit ever? There is something going on here we are not being told. I hate to sound the conspiracy alarm, but my guess is the one world currency is coming.

Posted by gmcnally2 at 10:38 AM : Jan 14, 2009

YOU kinda missed the WHOLE entire ELECTION didn''t you?? WE have to stop the SLIDE, in whatever way we can BEFORE we can turn it around! It''s no wonder you poor losers back the WORST in our HISTORY! You truly aren''t real bright. BUT I''ll bet YOU can repeat the Republican LIE for us can''t you?? You know the one where they will Cut taxes to the rich and Balance the Budget... Yeah the ONE they trot out EVERY two years and sell to you, the members of the National Alliance of Zero Intelligence?? Sieg Heil now!! ROFLMAO Wow! I''ve got a dog that has MORE intelligence than this!!

[irmcvet971]

Is this supposed to be a suprise. Im sorry in a economy that is suffering with &5 unemployment to be they should be going great job retail sales substained only a mere 2.7% decrease. Why no look for the positive in a negative and maybe change our outlook at news.

Posted by dzahner200 at 11:29 AM : Jan 14, 2009

Can YOU point to WORSE Numbers? Can you point to ONE MONTH when we have been under the Republican LIE of an Economic Policy when this nation HAS NOT been in the RED. YES they are bad, they are EXTREMELY bad and IF we do not shift some Wealth back to the Working Class it''s going to get a WHOLE lot worse.

[irmcvet971]

*** when did Bush and Mccain switch parties???

Posted by auscross1277 at 01:55 PM : Jan 14, 2009

LOL Isn''t it amazing?? THE same "Ditto Heads" that gave us the WORST in our HISTORY, Trickle Down AND De-Regulation, have just dropped Bush and gone back to the same TIRED OLD Garbage they''ve been using on the simple minded FEW that still believe them. AMAZING isn''t it??

[irmcvet971]

Give me MORE!! I want MORE Trickle Down and De-Regulation. I LOVE FAILURE and NEVER has there been MORE failure than these FASCIST Policies... NEVER! Sieg Heil America

[auscross1277]

WALMART is the problem with the economy. If people were spending that money at mom and pop stores, our economy would be much better... but instead, people show at walmart which sends its money right back to China, where they buy all their products, and pay their employees the bare minimum...

[auscross1277]

Who else could be responsible for the Dems incompetence?
Posted by DaVicar3 at 11:13 AM : Jan 14, 2009
*** when did Bush and Mccain switch parties???

[whitemale08]

All part of the aftermath from a collapse in our phony consumer-led Friedmanite ''free trade'' economy.

Now that globalization is in full decline, a post-Keynesian era is giving birth to the British neo-fuedalism New Dark Age.

Carbon-credits will be the next commodity bubble where life itself will be financed and traded as a ''credit-default-swap''.

The rapid deterioration in our economy will force desperate and impatient Americans to demand this system for new credit since the PLANNERS have no intent on raising wages.

You want to take a dump in a restroom like a civilized person? Finance it.

You want to drive to the local organic market to buy non-GMO food? Pay a toll by the mile.

You want to ride the bus to work? Swap the carbon-credits you earned by walking or riding a bike.

It''s British, it''s fantastic and it''s soon to be the American way.

[jtdev1]

When you see all the lousy Chinese slop they sell in the stores now it''''s now at prices near what they would cost if produced in this country...

Posted by talkingham


Yup, Pay American Prices for Chinese ***...

Stupid Americans. They''s buy anything at any price then complain when it breaks down 10 minutes later.


Remember, your nothing but a "Consumer" to any corporation... "Consume, Consume, Consume"...

[wl7bzh]

Remember now people, it''''s all psychological.


Posted by lemonskink at 12:07 PM : Jan 14, 2009

Yea,kinda like the reality of the value of our dollar.

[lemonskink]

Remember now people, it''s all psychological.

[dzahner200]

Is this supposed to be a suprise. Im sorry in a economy that is suffering with &5 unemployment to be they should be going great job retail sales substained only a mere 2.7% decrease. Why no look for the positive in a negative and maybe change our outlook at news.

[szapper08]

Yo zambesi...........sales clerks get real slow when there are obnoxious people on line talking down to them, and treating them like lowly serfs. And, these are usually the people who leave the fitting rooms a total mess with clothes piles on the floor, for "the maid to pick up"

[talkingham]

I hardly call 2.7% a plunge. They''ve already cut budgets where I work by 10% and we are expected not even to notice.

When you see all the lousy Chinese slop they sell in the stores now it''s now at prices near what they would cost if produced in this country then it''s no wonder people don''t want to buy it or pay top dollars to make billionaires richer. Of course if a billionaire loses 2.7% we all have to pay through the nose with our jobs so he or she can keep that 4th or 5th vacation house in Alps.