Dismal holidays over, but retail outlook still dim

Thursday, January 15, 2009

WASHINGTON -- After the worst holiday season in 40 years, retailers expect to face more sales declines in the months ahead as the recession deepens, job losses mount and consumers retrench further.

Retail sales plunged 2.7 percent in December, a record sixth straight monthly fall, and the first annual drop on government records dating to 1992, the Commerce Department said Wednesday. Last month's weakness -- more than double what economists had expected -- has extended into the new year with bankruptcy filings, store closings and more layoffs.

"Consumers are in deep hibernation, and there is no sign that they will wake up this spring or that the retail outlook will pick up anytime soon," said C. Britt Beemer, chairman of America's Research Group, a consumer research firm in Charleston, S.C.

This week alone, department store chain Gottschalks Inc. put itself up for sale and said it had filed to reorganize in a Chapter 11 bankruptcy, discount clothing chain Goody's Family Clothing filed for Chapter 11 protection, luxury retailer Tiffany & Co. lowered its year-end profit forecast and Neiman Marcus Group Inc. said it was cutting about 375 jobs. Last week, Macy's Inc. said it will close 11 underperforming stores in nine states.

"I think there will be a pickup in bankruptcies" this year, said Ken Perkins, president of research company RetailMetrics LLC. "The whole department store and specialty apparel sectors have been very weak now for some time."

The Federal Reserve's latest survey of business conditions nationwide, released Wednesday, underscored that. Most retailers reported "generally negative" holiday sales and are cautious about sales prospects in the months ahead, according to the report based on information collected between late November and Jan. 5.

The Fed report also found economic activity declined in a range of manufacturing industries along with worsening troubles in the housing sector.

The weakness in consumer spending, which accounts for about two-thirds of total economic activity, has been a prime contributing factor to the economy's current swoon. Analysts said the worse-than-expected retail sales report in December reinforced their belief that the current recession, already the longest in a quarter-century, will last at least until the second half of this year. The downturn began in December 2007.

The December sales drop was led by a huge 15.9 percent fall in sales at gasoline service stations, which reflected in large part the big decline in prices at the pump during the month.

Retail gasoline prices have rebounded somewhat, to about $1.79 nationally. But that decline hasn't managed to reverse falling demand. Other than the week that ended Dec. 5, when consumption rose 0.3 percent, it has fallen every week since April 25, according to the weekly SpendingPulse report by MasterCard released Tuesday.

Tom Kloza, publisher and chief oil analyst at Oil Price Information, said he doubts demand for gasoline can sink much lower: "It's already been cut to the bone where most of it is directly related to employment, or at least represents 'got-to' driving as opposed to discretional use."

But with layoffs soaring and financial markets in turmoil, consumers are hardly in a buying mood. December sales fell across a range of stores from auto dealerships to department stores, specialty clothing stores and hardware and appliance stores.

Brian Bethune, chief financial economist at IHS Global Insight, predicted that consumer spending would fall at an annual rate of 3.8 percent in the fourth quarter, matching the decline in the third quarter. Those back-to-back spending drops would be the worst since the early 1980s.

The economy's weakness began with the bursting of the housing bubble two years ago. The slippage intensified in the fall, when the financial system was engulfed in its biggest crisis since the 1930s.

Billions of dollars of losses on mortgages and other types of loans forced the government to put together a $700 billion rescue package in October to try to get banks resume more normal lending. So far, the initiative hasn't achieved much success.

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 0.5 percent in the third quarter.

For December, nearly 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.

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 had to take emergency loans from the government's bailout fund. Analysts forecast further sales declines this year, given all the troubles facing consumers, with only a small rebound expected in 2010.

Excluding autos, retail sales were down a record 3.1 percent in December, reflecting the widespread weakness in most other areas, led by the big plunge at gasoline stations. But even with gasoline sales removed, retail sales were down a sizable 1.4 percent in December.

Comments
Respond to this story

Posting a comment requires free registration: