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Tags: retail | sales | plunge

Retail Sales Fall Record 2.8 Percent in October

Friday, 14 November 2008 10:00 AM EST

WASHINGTON -- Consumers, taking a beating from the worst financial crisis in seven decades, cut back sharply on their spending in October, pushing retail sales down by a record amount.

As President George W. Bush and other world leaders gathered for a weekend summit to search for ways out of the mess, Federal Reserve Chairman Ben Bernanke on Friday pledged to cooperate with other central banks to deal with financial markets he said remain under "severe strain."

"The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain," Bernanke said in remarks to a central banking conference in Frankfurt, Germany.

The Commerce Department reported Friday that retail sales fell by 2.8 percent last month, the biggest drop on record, surpassing the old mark of a 2.65 percent plunge in November 2001 that occurred after the terrorist attacks.

The October sales decline was led by a huge fall in auto purchases, but sales of all types of products suffered as consumers, worried about their jobs and the market turbulence, cut back sharply on spending.

The dismal report on retail sales was worse than the 2 percent decline that analysts expected. It marked the fourth straight decrease, the longest stretch of weakness on record.

Retailers are braced for what could be the worst holiday shopping season in decades with economists forecasting a recession that could turn out to be the steepest since the 1981-82 downturn.

A survey of the nation's big chain retail stores found that retailers suffered through the weakest October in at least 39 years even though they tried to gin up more sales by a frenzied round of price cutting.

Amid the dismal economic news, Bush will host a leaders' summit of the Group of 20, which includes not only the world's wealthiest nations but also major developing countries such as Russia, China, Brazil and India. The G-20 leaders are meeting in Washington for two days of talks that will wrap up Saturday.

Bush on Thursday defended his administration's response to the financial crisis, which has included massive amounts of government assistance to banks and outright government takeovers of the country's biggest mortgage finance companies.

"I'm a market-oriented guy, but not when I'm faced with the prospect of a global meltdown," Bush said in a speech in New York.

He put forward a list of modest reform proposals including making accounting rules more transparent but stopped well short of the global market regulator being sought by some European nations.

Treasury Secretary Henry Paulson said he expected the meeting would address some important issues raised by the crisis, such as how credit-rating agencies failed to properly assess risks and how to develop better ways to monitor complex financial instruments known as derivatives, including credit default swaps.

Paulson said it would be wrong if other nations engage in a finger-pointing game that would lay blame for the current troubles on lax regulation in the United States. He said there were problems in a number of countries not just the United States.

Paulson on Wednesday announced that the administration was abandoning what had once been the centerpiece of the $700 billion rescue program _ the purchase of troubled assets held by banks. Instead, the program will focus $250 billion in purchase of bank stock, with Paulson arguing that this was a quicker way to get money into the banking system to encourage banks to resume more normal lending.

Paulson said the administration was examining new uses of the bailout money that would try to relieve pressures that have developed in the financial market that supports consumer loans such as credit card debt, auto loans and student loans. These loans are packaged together as securities and sold to investors, but after the huge losses for mortgage-backed securities, investors have grown leery of buying other types of consumer debt.

In a series of interviews on Thursday, Paulson provided new details of how the new program might work. He said that Treasury was exploring a joint program with the Federal Reserve that would seek to make financing of these types of loans more available. The new lending facility might buy securities backed by credit cards, auto loans or student loans in an effort to get this market back to more normal operations.

Paulson said that while the $700 billion rescue program is continuing to undergo modifications, it is proving to be a successful at its overall objective of stabilizing the financial system.

"I believe the banking system has been stabilized," he said in an interview on National Public Radio. "No one is asking themselves anymore is there some institution that might fail and that we would not be able to do anything about it."

In addition to news that jobless claims jumped sharply last week, the Treasury Department reported that the budget deficit for October soared to a record $237.2 billion, putting it on track to reach the once-unfathomable sum of $1 trillion for the year.

The flood of red ink was blamed on the initial costs of the bailout effort which spent $115 billion buying stock in the country's largest banks.

"And as bad as these numbers are, they may look good a year from now because things are going to get much worse," said Sung Won Sohn, an economist at the Smith School of Business at California State University, Channel Islands.

He predicted that the recession would drive unemployment higher, cutting into government tax revenue, and boosting payments for such programs as unemployment benefits and food stamps.

© 2008 The Associated Press. All rights reserved.


WASHINGTON -- Consumers, taking a beating from the worst financial crisis in seven decades, cut back sharply on their spending in October, pushing retail sales down by a record amount.As President George W. Bush and other world leaders gathered for a weekend summit to...
Friday, 14 November 2008 10:00 AM
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