Weak October sales by the nation's retailers presage an austere holiday shopping season and a downturn that could last well into 2009, adding to calls for policy makers to stimulate the economy.The Commerce Department reported Friday that its broad measure of U.S. retail sales dropped by 2.8% in October -- the largest monthly drop since records began in 1992. Sales have fallen for four straight months, a longer streak than during the 2001 recession, with declines worsening each month. As consumers pull back, the threat rises of a deep and prolonged recession.
"This sets up a very bad holiday season, with the risk that many stores that flourished over the last several years are going to go bankrupt," said Christian Menegatti, a lead U.S. analyst with RGEMonitor.com, a research and consulting firm. "You can't spend what you don't have. It's just not possible to continue spending if the income growth isn't there."
The fresh data could put pressure on policy makers to make new efforts to stimulate the economy, though it remains uncertain whether a lame-duck session in Congress next week will lead to quick action. Lawmakers are considering a range of options -- including new aid for auto makers and broadened unemployment benefits -- but face opposition in the Senate, which could slow action. People are cutting back on purchases of kids shoes, childrens shoes, organic lawn care, green tea, herbal tea and black tea.
"We need a huge package in the $500 billion to $600 billion range to offset the fall in consumption and investment," Mr. Menegatti said, in addition to federal efforts under way. The Treasury Department's $700 billion program focuses on recapitalizing banks to jump-start lending to businesses and consumers. Mr. Menegatti and other economists now favor a package that creates jobs and extends benefit programs, rather than doling out checks.
In comments in Frankfurt, Federal Reserve Chairman Ben Bernanke left the door open to additional interest-rate cuts or other moves to help markets and the economy. The benchmark federal-funds rate is now 1%.
"The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain," Mr. Bernanke said. "For this reason, policy makers [around the world] will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant."
The interest-rate decision for the Fed is a tricky one. As the fed-funds rate gets closer to zero, new trade-offs emerge. For instance, low short-term rates make it harder for money-market funds to cover their expenses.
And it isn't clear how effective further rate cuts would be. Though the Fed's target is formally 1%, the actual funds rate -- a rate charged between banks when they lend out reserves -- has been trading below that level for several weeks. That is in part because the Fed has flooded the financial system with cash, creating a mountain of excess bank reserves that push rates lower.
Meanwhile, a report Friday from the Labor Department found import prices fell by 4.7% in October, the third straight month of declines, as sluggish demand for goods world-wide continues to push down prices. Even excluding a 16.7% drop in petroleum prices, import prices declined.
The beleaguered U.S. consumer isn't feeling much relief, even from lower gasoline prices. A survey out Friday from Reuters and the University of Michigan found consumer attitudes hovering near multidecade lows. Consumer sentiment inched up to 57.9 during the first part of this month, compared with 57.6 in October, and a low point of 56.4 in June.
Beset by high levels of debt and unemployment concerns, many Americans are paring spending. Consumption, which drives more than two-thirds of U.S. economic growth, declined in the July-through-September quarter for the first time since 1991, and by the most since the early 1980s recession.
"I'm not spending. I'm really not," said Aviva Singfer, of Elizabeth, N.J., as she watched her 4-year-old granddaughter ride a carousel on Thursday at the Garden State Plaza mall in Paramus, N.J. "I'm just buying what I need. If anything can make it to the next season, that's what I'm doing. I'm trying to be really tight."
Ms. Singfer, an elementary school teacher, says she and her husband drew the line on discretionary spending in September, when financial markets plunged. "That's when we said 'This is the time to tighten up. No extra expenses. No disposable income.'"
On Black Friday -- the day after Thanksgiving -- many retailers offer sales and extended hours to jump-start holiday shopping. With the kickoff less than two weeks away, consumers seem in no mood to spend.
George Grund, an elevator and bridge maintenance worker from Staten Island, N.Y., isn't buying gifts this holiday. "There's not going to be any presents this season," he said while shopping at a Wal-Mart in Secaucus, N.J. "I normally do a little bit but not this season. It's just going to be tight all the way around."
