07 Dec 2008
Dec. 7 (Bloomberg) -- Sales at U.S. retailers probably fell in November for a fifth consecutive month, pushing the economy deeper into the longest recession since 1982, economists said before reports this week.
Purchases fell 2 percent last month, capping the longest stretch of declines since records began in 1992, according to the median estimate in a Bloomberg News survey. Other reports may show prices slumped, led by plummeting commodity costs, and fewer Americans signed contracts to buy previously owned homes.
Consumers are limiting purchases as the labor market deteriorates and falling property and stock values hurt household wealth. The slump in personal spending, which comprises more than two-thirds of the economy, may contribute to a second consecutive contraction in gross domestic product.
"Consumers have less money, are earning less money, can borrow less money and are more worried about the future, which is always a good reason to cut back," said Christopher Low, chief economist at FTN Financial in New York. "This is a consumer recession, and history tells us consumer recessions are much, much worse than corporate recessions."
The Commerce Department's retail sales report is due Dec. 12. A drop would follow October's 2.8 percent decline.
Excluding automobiles, November sales fell 1.8 percent after slumping 2.2 percent the previous month, according to the Bloomberg survey.
Job Losses
Mounting job losses are causing consumers to spend less. U.S. companies slashed payrolls in November at the fastest pace in 34 years. Employers cut 533,000 workers last month, bringing losses this year to 1.91 million, the Labor Department said Dec. 5.
President-elect Barack Obama plans a two-year stimulus package to reverse the economy's decline after he takes office Jan. 20.
Obama said yesterday his plan to create or preserve 2.5 million jobs will include the "single largest new investment" in roads, bridges and public buildings since the Eisenhower Administration in the 1950s. In his weekly radio speech, he also pledged to make public buildings more energy efficient, repair schools and modernize health care with electronic medical records.
The U.S. economy shrank at a 0.5 percent annual pace from July through September as Americans reduced purchases at a 3.7 percent annual rate, the first decline since 1991 and the biggest drop in 28 years, the government said last month.
Auto Crisis
Demand for automobiles is plunging as banks restrict credit amid mounting losses. Auto sales dropped 37 percent in November from the same month last year to the lowest level since 1982.
Chrysler LLC and General Motors Corp. told lawmakers last week they need a combined $14 billion to keep operating through March 31. Together with Ford Motor Co., the companies are asking Congress for as much as $34 billion in aid.
Democrats in Congress reached an agreement in principle with the Bush administration on providing funds to prevent the collapse of GM and Chrysler, a congressional aide said. Details of the legislation that will be voted on next week are still to be worked out, including the total amount to be offered, the Democratic aide said. Still, the accord ends a dispute over the source of the funds that stalled congressional action for weeks.
The employment outlook is likely to weigh on the holiday shopping season, when many stores expect to reap half of their annual revenue. Same-store sales in the U.S. fell 2.7 percent in November from a year earlier, the biggest drop since records began in 1969, the International Council of Shopping Centers said last week.
Retailers' Bonds
The premiums investors demand to buy some retailers' debt has soared as the economy faltered.
Limited Brands Inc., the Columbus, Ohio-based owner of the Victoria's Secret chain, has seen the spread on its 6.9 percent note due in July 2017 climb to 10.27 percentage points more than the comparable-maturity Treasury. That's up five percentage points in the past four months; it was sold at a spread of 1.8 percentage point in July last year. The note is rated Ba1 by Moody's Investors Service, the highest junk grade.
The premium on 9.125 percent notes issued by Oak Brook, Illinois-based Ace Hardware Corp. climbed to 12.85 percentage points by the end of last month from 5.87 points in mid-June.
The faltering global economy is also dragging down demand for commodities, causing raw-material prices to plummet. The Labor Department's producer-price index, due Dec. 12, is forecast to fall 2 percent for November, a fourth straight decline, after dropping 2.8 percent, according to the survey.
Oil Slide
Energy prices plunged from their peaks in July, when a barrel of crude oil cost $147. Last week oil traded for $40 a barrel on the New York Mercantile Exchange, the lowest price since 2004.
The drop in commodities also cooled so-called core inflation, which excludes fuel and food costs. Core producer prices for November are forecast to increase 0.1 percent, the smallest gain in eight months, as costs declined for metals and machinery.
"Plunging prices bring new dangers," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. "Deflation, not inflation, is now the primary price risk." Deflation is a prolonged and widespread decline in prices.
Falling fuel costs will likely affect two other government reports this week. Figures from the Commerce Department on Dec. 11 may show the October trade gap narrowed as imported crude oil costs dropped. The deficit is projected to shrink to $53.5 billion, the smallest since March 2005.
Import Prices
The prices of all goods imported into the U.S. in November probably fell 4.8 percent, the most since record-keeping began in 1989, economists project a Labor Department report the same day will show.
Sliding energy prices have hammered the shares of companies in the industry, contributing to the stock market's collapse in recent months. The Standard and Poor's 500 Oil & Gas index is down 20 percent in the past month. The S&P 500 Stock Index as a whole has slid 40 percent this year, part of the $740 billion destruction of U.S. equity market capitalization in 2008.
The housing slump shows no sign of abating. The National Association of Realtors may say fewer Americans in October signed contracts to buy previously owned homes. The report, due Dec. 9, is forecast to show pending home sales declined 3 percent after falling 4.6 percent in September.
The constant drumbeat of bad economic news has shaken Americans. The Reuters/University of Michigan preliminary index of consumer sentiment in December fell to 55, the lowest level in 28 years, from 55.3 the previous month, according to the survey median.
Bloomberg News
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Release Period Prior Median
Indicator Date Value Forecast
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Pending Homes MOM% 12/9 Oct. -4.6% -3.0%
Whlsale Inv. MOM% 12/10 Oct. -0.1% -0.2%
Federal Budget $ Blns 12/10 Nov. -98.2 -175.0
Trade Balance $ Blns 12/11 Oct. -56.5 -53.5
Import Prices MOM% 12/11 Nov. -4.7% -4.8%
Import Prices YOY% 12/11 Nov. 6.7% -1.8%
Initial Claims ,000's 12/11 Dec. 6 509 522
Cont. Claims ,000's 12/11 Nov. 29 4087 4100
PPI MOM% 12/12 Nov. -2.8% -2.0%
Core PPI MOM% 12/12 Nov. 0.4% 0.1%
Retail Sales MOM% 12/12 Nov. -2.8% -2.0%
Retail ex-autos MOM% 12/12 Nov. -2.2% -1.8%
U of Mich Conf. Index 12/12 Dec. P 55.3 55.0
Business Inv. MOM% 12/12 Oct. -0.2% -0.2%
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