U.S. retail sales fall 2.7% in December

Stung by weak demand and falling prices, U.S. retail sales plunged a seasonally adjusted 2.7% in December from November, the Commerce Department estimated Wednesday.

Excluding a 0.7% decline in auto sales, retail sales recorded their biggest drop since record-keeping began in the early 1990s, falling 3.1%.

And with both gasoline and autos excluded, sales fell 1.5%, the largest drop since September 2001.

“The holiday season was truly disastrous,” wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. Poor retail sales point to a “deeper recession than previously anticipated,” said Peter Kretzmer, an economist for the Bank of America.

The nation’s retail sales have fallen for six months in a row now — the longest decline on record — with the declines accelerating as the economy weakened in the final quarter of the year. Sales data were revised lower for both October and November, to declines of 3.4% and 2.1%, respectively.

“Holiday sales posted the biggest decline on record falling around 3.5%,” wrote Anika Khan, an economist for Wachovia. “Sales have been primarily driven by extensive discounting which is hurting retail profit margins.”

Plummeting sales are hurting the retailers. Department store chain Gottschalks Inc. (GOTT) said Wednesday it filed for bankruptcy. Luxury retailer Tiffany & Co. (TIF) said its holiday sales fell 21%, forcing the company to lower its forecast for earnings. Drug store chain Walgreen (WAG) said it would eliminate 1,000 jobs this year.

Some of the decline in sales can be attributed to falling prices. The figures are not adjusted for price changes, but they are adjusted for seasonal variations. Economists believe consumer prices fell 0.8% in December; U.S. inflation data will be released on Friday.

In a separate report Wednesday, the Labor Department said import prices fell 4.2% in December, on the heels of a 7% drop in November.

Retail sales last month were down a record 9.8% compared with December 2007, the Commerce Department’s data showed. Sales excluding autos fell a record 6.7% in the past year.

For all of 2008, sales slipped 0.1% compared with 2007, the first decline in annual sales since the records began in 1967.

December’s decline in total sales was much worse than the 1.5% month-to-month drop that economists surveyed by MarketWatch had anticipated. They also had been looking for sales excluding autos to drop 1.6%.

Over the final three months of the year, retail sales were 6.8% lower than in the period from July to September, and chain stores have reported further weakening in their receipts in early January, as the U.S. recession began its second year.

The report implies real consumer spending may have fallen at a 3.4% annual pace in the fourth quarter, nearly matching the 3.8% decline in the third quarter, said David Greenlaw, an economist for Morgan Stanley. He expects gross domestic product to fall 6% in the quarter.

December’s dreary details

Sales were weak across the board last month.

“The only category that posted a gain was health and that may have been because people were buying a ton of aspirin to deal with the pain of the recession,” wrote Joel Naroff of Naroff Economic Advisers.

Falling gasoline prices pushed sales at gas stations down 15.9%, punctuating November’s 18.3% plunge.

Stores selling general merchandise saw their sales fall 1.3% on the month, including a 2.3% decrease at department stores, the biggest drop in nearly five years.

Sales at clothing stores plunged 2.5%. Sales at sporting goods and other stores catering to leisure-time activities fell 0.4%.

Sales at auto dealers fell 0.7%, putting the drop for the past year at fully 22.4%.

Sales at furniture stores dropped 1.8%. Sales at hardware and garden stores fell 2.9%. Sales at electronics and appliance stores fell 1%.

Sales at food and beverage stores fell 1.4%, the biggest drop in nearly eight years. Sales at restaurants and bars skidded 2.2%, the biggest drop since September 2001.

Sales at health and personal care stores rose 0.4%.

Sales at nonstore outlets, such as catalogs and online stores, fell 1.9%.

Source: Dow Jones