Retail sales plummet 2.7 percent in December

WASHINGTON – Retail sales plunged far more than expected in December, a record sixth straight monthly decline as consumers were battered by a recession, a severe credit crisis and soaring job losses, none of which are likely to ease anytime soon.

The Commerce Department reported Wednesday that retail sales dropped 2.7 percent last month, more than double the 1.2 percent decline that Wall Street expected.

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.

In a separate report, the Commerce Department said businesses cut their inventories by 0.7 percent in November, the largest decline in seven years and the third straight month that stockpiles were reduced as companies scramble to cope with huge declines in sales. Total business sales fell by a record 5.1 percent in November, the government said.

The worry is that the current downturn will be intensified if businesses keep slashing inventories, which will trigger further cutbacks in production and increased layoffs.

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.

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.

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 in morning trading. The Dow Jones industrial average lost over 200 points, and all the major indexes were down more than 2 percent.

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.