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Stocks Tumble as Retail Sales Report Shows Sharp Decline

Posted by tothewire on January 14, 2009

As if retailers needed another reminder that business was bad.

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The government reported on Wednesday that retail sales fell for a sixth consecutive month in December, as Americans holstered their credit cards and cut back on spending, even as stores offered discounts of 80 percent to entice shoppers.

Sales at department stores, restaurants, gas stations and a host of other retail businesses fell 2.7 percent last month — nearly double what economists had been expecting — and were 9.8 percent lower than sales last December, the Commerce Department reported.

The gloomy report set the tone for Wall Street, which fell sharply on Wednesday. The Dow Jones industrial average was down more than 250 points, or 3 percent, at mid-day while the broader Standard & Poor’s 500 index was down 3.4 percent.

Losses on Wall Street were broad, led by financial, energy and retail stocks. Shares of Wal-Mart Stores, the world’s largest retailer, were down about 1 percent, and Citigroup fell below $5 a share as the beleaguered banking giant prepared to shear off its prized brokerage unit.

Investors’ optimism buoyed markets after Christmas and in the first days of 2009, but they have run for cover over the past week, erasing those holiday gains. Prices of Treasuries rose on Wednesday, pushing yields lower on the benchmark 10-year note, as investors returned to safe-haven debt.

“There’s an enormous amount of money on the sidelines, not knowing where to go,” said Howard Silverblatt, senior index analyst at Standard & Poor’s. “If I had a mattress company I’d make a fortune.”

The new retail numbers offered an epitaph for what economists and retailers called the worst holiday shopping season in decades: Electronics sales were down 1 percent in December from a month earlier; food and drinks fell by 1.4 percent and sales at clothing stores were 2.5 percent lower, the Commerce Department said.

“People hunkered down pretty dramatically,” said John Silvia, chief economist at Wachovia. “Yes, everybody celebrated the holidays, but there was far less spending than in prior years.”

The fact that retailers did poorly this holiday shopping season was not unexpected, but the size of the decline caught some investors by surprise.

A sharp drop in the business inventories, the most in seven years, was also a reflection of the drop in consumer spending, as companies tried to reduce their costs. In a separate report, the Commerce Department said Wednesday that business inventories were reduced by 0.7 percent in November, worse than the 0.5 percent drop analysts expected. It was the third consecutive month that businesses reduced stockpiles.

Consumer spending, which accounts for more than two-thirds of the economy, has slowed sharply since mid-September as the problems on Wall Street began to spread. With the uncertainty of jobs weighing on consumers, economists do not expect a turnaround anytime soon.

The recession, which began in December 2007 and is already the longest on record, is expected to last into the second half of 2009, and some economists predict that the current unemployment rate of 7.2 percent could hit 9 percent.

To help spur the economy and restore confidence, President-elect Barack Obama has promised to push a stimulus package of about $800 billion, which he is pressing Congress to pass in the weeks ahead.

“Consumers are in deep hibernation,” C. Britt Beemer, chief executive of the America’s Research Group, said, “and there is no sign that they will wake up this spring or that the retail outlook will pick up any time soon.”

More and more shoppers, he said, are limiting their spending to discounted items and determining where they shop based solely on price.

According to the Commerce Department, retail sales for 2008 fell 0.1 percent from 2007, with most of the losses coming from a 7.7 percent drop during the last three months of the year.

Much of December’s drop in retail sales came from falling gasoline prices, which have tumbled to a nationwide average of $1.79 a gallon from their peaks of $4.11 in July. Sales at gas stations fell 15.9 percent from November to December, and were down more than 35 percent from December 2007.

But even excluding gasoline and automobiles, retail sales dropped by 1.5 percent for the month, said James O’Sullivan, senior economist at UBS.

“It was a pretty broad-based decline,” he said.

The government’s figures were the latest confirmation of a bleak holiday shopping season.

Sales for retailers during the holidays were particularly weak, reflected in the wave of retail bankruptcies in the last few weeks.

Last week, an industry group reported that retail sales had fallen 2.2 percent in November and December from a year earlier, and that some of the most widely known brands in America had suffered even worse declines.

Department stores including Nordstrom, Sak’s and Nieman Marcus reported double-digit percentage drops since last year. Abercrombie and Fitch was down by 24 percent and J. C. Penney by 8.1 percent, and even Wal-Mart missed analysts’ expectations and cut its outlook for the months ahead.

And the months ahead will be difficult. January is typically a slow month for retailers, and the significance of a December sales decline is far greater than a drop-off in January because sales in November and December account for 25 to 40 percent of many retailers’ annual sales, according to the National Retail Federation, an industry group.

By JACK HEALY

http://www.nytimes.com

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