U.S. Retail Sales Slump 1.2%, Most in Three Years

By Bob Willis
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Oct. 15 (Bloomberg) -- Sales at U.S. retailers dropped in September by the most in three years as mounting job losses, plunging home prices and the deepening credit crisis rattled consumers.

Purchases fell 1.2 percent, more than forecast, following a 0.4 percent decline the prior month, the Commerce Department said today in Washington. Excluding autos, sales fell 0.6 percent, also more than anticipated.

The biggest decline in stock prices in at least seven decades last week may further undermine confidence, prompting consumers to cut back on non-essentials like new cars and vacations that will deepen the economic slump. U.S. stocks retreated after the report.

``Consumers are hunkering down,'' said Brian Bethune, chief financial economist at Global Insight Inc. in Lexington, Massachusetts. ``The fourth quarter is guaranteed to be terrible.''

The Labor Department reported separately that prices paid to U.S. producers fell 0.4 percent in September, the second consecutive decline. So-called core producer prices that exclude fuel and food increased 0.4 percent. The Federal Reserve Bank of New York's Empire State manufacturing index fell to minus 24.6 in October, the most since the survey began in 2001, from 7.4 in September.

The Standard & Poor's Index dropped as much as 38.65 points, or 3.9 percent, to 959.36.

Three-Month Slide

September's drop, the largest since August 2005, extended declines in retail sales to three consecutive months, the first time that's happened since comparable records began in 1992.

Sales are slowing just as merchants prepare for the holiday selling season, which may account for as much as 35 percent of a retailer's revenue.

The median forecast of 75 economists surveyed projected purchases would drop 0.7 percent following a previously reported 0.3 percent decline the prior month. Estimates ranged from a fall of 1.5 percent to a 0.1 percent gain.

Sales excluding automobiles decreased 0.6 percent after falling 0.9 percent the prior month. They were forecast to drop 0.2 percent from the prior month, according to the survey median.


Eleven of the 13 main categories tracked by Commerce showed a drop in demand last month, led by a 3.8 percent slump at auto dealers. Carmakers see little relief in sight.

Little Relief Seen

``We continue to see the trend of the past couple of months,'' Ford Motor Co. North American chief Mark Fields said in the Ford plant in Dearborn, Michigan.

GMAC LLC, the lender once owned by General Motors Corp., said this week it will grant financing only to buyers with credit scores of at least 700, who represent about 58 percent of U.S. consumers.

Industry figures earlier this month, which are the ones used to calculate gross domestic product, showed cars and light trucks sold at a 12.5 million annual pace in September, the fewest since 1993. October sales may drop to an 11 million pace, the first time the rate has dropped below 12 million since April 1983, according to an estimate by an analyst at Deutsche Bank AG.

Sales at furniture stores dropped 2.3 percent, the most since February 2003, and purchases at clothing outlets decreased by the same amount, the most this year. Americans cut back on visits to restaurants and bars, where sales dropped 0.5 percent, the most since January 2007.

Gap, Macy's

Weakening demand at merchants such as Gap Inc., J.C. Penney Co. and Macy's Inc. also hurt total purchases, signaling retailers may be heading for the worst holiday shopping season in six years.

Terry Lundgren, chief executive officer at Macy's, the second-biggest U.S. department-store chain, forecast a recovery in sales won't begin until the second half of next year.

``The most important issue for us is jobs,'' Lundgren said in an Oct. 10 telephone interview. ``That's what has to stabilize. If you lose your job, that affects everything.''

Excluding autos, gasoline and building materials, the retail group the government uses to calculate GDP figures for consumer spending, sales dropped 0.7 percent, after a 0.4 percent decrease in August. The government uses data from other sources to calculate the contribution from the three categories excluded.

The only categories registering gains last months were service stations, with a 0.1 percent increase, and health and personal care stores, where sale rose 0.4 percent.

Expansion Ends

Consumer spending fell at an annual rate of 2 percent in the third quarter, bringing to a halt a record expansion that began in 1992, according to the median estimate of economists surveyed in the first week of October. Purchases will probably drop at a 0.9 percent pace in this quarter and be unchanged in the first three months of 2009, the projections also showed.

The U.S. has lost 760,000 jobs in the first nine months of the year and the jobless rate was unchanged at a five-year high of 6.1 percent in September, the Labor Department reported earlier this month.

The government passed a $700 billion bank rescue package this month to thaw credit markets frozen by mounting losses on mortgage-backed securities. The plan will include direct cash infusions government purchases of preferred stock in the nation's biggest banks, and guarantees on new debt.

The Fed, as part of a concerted effort with other central banks, cut the target on its benchmark rate by a half point last week and Chairman Ben S. Bernanke signaled policy makers are ready to lower borrowing costs again showed the markets not stabilize.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net