It’s official now: US retail sales take a dip in September

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Oct 12: Sales at US retailers probably dropped in September as mounting job losses, plunging home prices and the deepening credit crisis shook consumers, economists said before reports this week.

Purchases fell 0.7% following a 0.3% decline the prior month, according to the median estimate in a Bloomberg survey before the Commerce Department's Oct. 15 report. Other figures may show housing starts fell to a 17-year low and falling fuel prices tempered increases in the cost of living. The stock-market meltdown last week may further undermine already fragile consumer confidence, prompting cutbacks on non- essentials like new cars and vacations that will deepen the economic slump. Falling oil prices are the one bright spot, slowing inflation and giving the Federal Reserve leeway to keep cutting interest rates to unclog credit markets.

“The prospect of a consumer recession overlaid on a housing downturn and the worst financial crisis in modern times has sent a chill through business corridors,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “The body blows to the US economy are coming fast and furious.''

A drop in September would extend declines in retail sales to three consecutive months, the first time that's happened since comparable records began in 1992.

Expensive items like automobiles saw the biggest drop in demand in September. Cars and light trucks sold at a 12.5 million annual pace in September, the fewest since 1993, according to industry figures issued earlier this month.

Excluding automobiles, sales decreased 0.2% after dropping 0.7% in August, according to the Bloomberg survey median. A decrease in service-station receipts, reflecting a 5- cent drop in the average cost of gasoline last month, probably contributed to the decline, economists said.

Consumer spending fell at an annual rate of 2% 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% pace this quarter and be unchanged in the first three months of 2009, the projections also showed.

A 0.2 % drop in gross domestic product at an annual pace last quarter will be followed by a 0.8% decline in the last three months of 2008, signaling the first US recession since 2001, according to the forecasts.

Even online retailer EBay Inc., which has almost doubled its staff since 2005, is bracing for a downturn. It plans to slash 10% of its workforce, about 1,600 positions, as sales slow and competition intensifies.

“There's no doubt these are challenging times for consumers, both in the US and in economies around the world,'' Chief Executive Officer John Donahoe said Oct. 6. “It will be a challenging holiday season,'' he said.

“Recent intensification of the financial crisis has augmented the downside risks to growth,'' the Federal Reserve said Oct. 8 as it announced a surprise half-point cut in its target rate, to 1.5% . “The decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.''

Consumer prices rose 0.1% in September after falling 0.1 percent the prior month, according to the median forecast ahead of the Labor Department's Oct. 16 report. The increase in prices in the 12 months ended September is projected to slow to 5 % from 5.4 % in August. Housing is likely to continue to be the economy's weakest link into next year.

A Commerce Department report Oct. 17 may show work began on 870,000 homes at an annual rate in September, the fewest since January 1991, according to the survey median. Declines in construction have detracted from growth since the first quarter of 2006.

Another report the same day may show consumer confidence weakened for the first time since reaching a 28-year in June. The Reuters/University of Michigan preliminary sentiment index may drop to 65 this month from 70.3 in September, according to economists' forecasts.