October Retail Sales Sink To 40-Year Low

The nation's retailers saw their sales plummet last month to the weakest October level since at least 1969, as the financial crisis and mounting layoffs left shoppers too scared to shop.

The stunning drop-off from an already weak September performance is further darkening the outlook for the holiday season and dimming hopes for any industry recovery until at least the second half of next year.

As merchants reported their dismal sales figures Thursday, Wal-Mart Stores Inc., the world's largest retailer, proved to be among the few bright spots as it benefits from shoppers focusing on buying basics at discounters.

Most other stores, from luxury merchants to teen retailers, suffered steep sales declines as consumers were spooked by shrinking retirement funds and volatile markets. The number of people continuing to receive jobless benefits reached its highest level in more than 25 years, according to government figures released Thursday.

Even warehouse club operator Costco Wholesale Corp., which sells items like TVs along with basics, posted disappointing results.

"Wal-Mart's solid performance is reflective of the weakness in consumer spending," said Ken Perkins, president of research company RetailMetrics LLC. "As soon as the financial crisis hit, consumers spending dropped dramatically. ... Consumer spending ground to a halt in October."

Michael P. Niemira, chief economist at the International Council of Shopping Centers, described October's performance as "awful."

"This reflects the severity of the current financial crisis," he said.

According to the ICSC-Goldman Sachs index, sales fell 1 percent, the weakest October performance since at least 1969 when the index began. That compares to a 1 percent gain in September and well below the 1.8 percent average pace so far this fiscal year, which for retailers begins in February.

Excluding Wal-Mart, the October sales number was down 4.6 percent. The index is based on same-store sales, or sales at stores opened at least a year, which are considered a key indicator of a retailer's health.

Wal-Mart, which has seen its aggressive discounting resonate with shoppers, posted a 2.4 percent gain in same-store sales, beating Wall Street projections for a 1.6 percent gain. Including fuel sales, same-store sales rose 2.5 percent.

At Sam's Club, its warehouse club division, fresh food, dry groceries and other consumables were strong. Weaker categories included electronics, jewelry and home-related products, the company said.

Wal-Mart predicted that same-store sales for its overall U.S. stores will be up from 1 percent to 3 percent in November.

Target Corp. - which has lagged behind Wal-Mart in recent months because of its heavier emphasis on nonessentials - posted a 4.8 percent drop, worse than the 2.8 percent decline that analysts had expected.

"Sales for the month of October were very disappointing, with continued volatility in daily results," Target's President and Chief Executive Gregg Steinhafel said in a statement. "We expect the recent challenging sales environment to continue into the holiday season and beyond as a result of the economic factors currently affecting consumer spending."

Costco, hurt by currency effects, reported a 1 percent decline in October. Analysts surveyed by Thomson Reuters expected a gain of 3.6 percent.

Macy's Inc. reported a 6.3 percent drop in same-store sales for October. No estimate from Thomson Reuters was available. Gap Inc. saw a 16 percent drop, worse than the 11.1 percent decline Wall Street had forecast. The retailer reaffirmed its profit outlook for the third quarter, however, as it focused on inventory control. Limited Brands Inc. reported a 9 percent drop in October, a bigger decline than the 7.2 percent analysts were expecting.

Even teens dramatically scaled back their spending. American Eagle Outfitters Inc. reported a 12 percent drop in same-store sales, worse than the 8 percent decline predicted, while Abercrombie & Fitch Co. suffered a 20 percent drop last month, steeper than the 14.4 percent decline expected. Wet Seal Inc. saw its same-store sales fall 6.2 percent, less than the 8.6 percent decline expected. The teen retailer said it now expects third-quarter profit at the high end of its guidance.

Meanwhile, the efficiency of U.S. workers slowed sharply in the summer as a huge pull back by American consumers threw the national economy into reverse.

The Labor Department reported Thursday that productivity - the amount an employee produces for every hour on the job - grew at an annual pace of 1.1 percent in the July-to-September quarter, down from a 3.6 percent growth rate in the second quarter.

With productivity growth slowing, labor costs picked up. Unit labor costs - a measure of how much companies pay workers for every unit of output they produce increased at a 3.6 percent pace in the third quarter, compared with a 0.1 percent rate of decline in the prior period.

Worker productivity growth slowed as overall production, or output, declined, reflecting the hit to consumers and the economy as a whole from the housing, credit and financial debacles.

In the latest sign of the ailing job market, the number of people continuing to draw unemployment benefits jumped by 122,000 to 3.84 million in late October, a separate report from the department showed. It was the highest level since late February 1983, when the country was struggling to recover from a long and painful recession. New filings for jobless benefits last week dipped to 481,000, a still-elevated level that suggests companies are in a cost-cutting mode.

The 1.1 percent productivity growth logged in the summer beat economists' expectations for a 0.8 percent growth rate. The pick up in labor costs while welcome to workers - was faster than the 2.8 percent pace economists were forecasting.

Economists often look at labor compensation for clues about inflation. These days, however, the Federal Reserve and analysts are more concerned about the economy's feeble state. While the pick up in labor costs might raise some economists' eyebrows, the Fed is predicting inflation pressures will lessen as the economy loses traction.

The 1.1 percent productivity gain was the smallest since the final quarter of last year, while the increase in labor costs was the biggest since that time.

Hoping to prevent a deep recession, the Federal Reserve last week ratcheted down interest rates last week to 1 percent and left the door open to further reductions.

The country's economic state has rapidly deteriorated in the course of just a few months. The economy contracted at a 0.3 percent pace in the July-to-September quarter, signaling the onset of a likely recession. It was the worst showing since the the last recession, in 2001, and reflected a massive pull back by consumers.