Retail sales set record on way down
Sales fall 3.7% in November after gaining 6.4% in October
By Rex Nutting, CBS.MarketWatch.com
Last Update: 9:40 AM ET Dec. 13, 2001
WASHINGTON (CBS.MW) - Retail sales plunged a record 3.7 percent in November from October's inflated level, the Commerce Department said Thursday.
Auto sales dropped 11.9 percent in November after soaring 24.2 percent in October. The boost in auto sales in October, fueled by unprecedented incentives for buyers including zero percent financing, had led to a record 6.4 percent gain in retail sales in October.
Excluding autos, retail sales fell 0.5 percent in November after rising 0.8 percent in October. Excluding gasoline and autos, sales rose 0.1 percent.
Overall sales are up 3.5 percent in the past year. The figures are not adjusted for price changes.
The weak report boosted Treasury prices, dropping their yields. See Bond Report. Stocks were broadly lower. See Market Snapshot.
"This report is not nearly as dismal as it looks," said Oscar Gonzalez, economist at John Hancock Financial. "Consumer spending has slowed, but there's little to suggest that it's poised to collapse and take down the recovery with it."
Meanwhile, the Labor Department reported the largest drop in nine years in weekly initial jobless claims last week. First-time claims fell 86,000 to 394,000 while continuing claims rose 36,000 to 3.66 million.
The Labor Department also said producer prices fell 0.6 percent in November, with core prices up 0.2 percent. See full story.
The Federal Reserve pointed to "preliminary and tentative" signs of improvement in demand in the economy when they lowered overnight interest rates for an 11th time in 2001 on Tuesday, keeping the door open for further cuts to drag the economy out of recession. See full story.
Consumer spending is one key to recovery. Although consumer spending has held up fairly well during the slowdown, any persistent faltering in spending could prolong the downturn.
The weak November sales data "has yet to show the full effects of the sharp rise in unemployment," said Drew Matus, economist at Lehman Brothers. "If the labor market continues to falter, we can expect continued (and perhaps intensified) weakness in consumption."
Economists are closely watching holiday sales for hints about what consumers will do. So far, sales have been lackluster at most chain stores. Consumers are feeling pinched by their portfolio losses this year and are increasingly nervous about high debt levels and job losses.
In this environment, consumers are tough bargainers and have learned to wait out retailers to catch the discounts just before Christmas. Profit margins are being squeezed.
"The sales trend for the fourth quarter is actually quite firm given the surge in car sales in October," said John Youngdahl, economist at Goldman Sachs. "The key question is how much this has been borrowed from the future."
Consumers are also getting great deals on energy prices, especially compared with last winter's heating season. The drop in energy prices is putting about $40 billion extra into consumers' pockets, analysts say. See full story.
Gasoline sales plunged 6.3 percent in November, largely because of lower prices. Excluding gasoline, total sales fell 3.5 percent.
In November, sales of durable goods other than autos rose. Furniture sales gained 2.6 percent, while electronics and appliance sales rose 1.8 percent.
Sales at general merchandise stores fell 0.1 percent, despite a 1.5 percent gain in department store sales. Sales at clothing stores fell 0.6 percent.
Rex Nutting is Washington bureau chief of CBS.MarketWatch.com.
