Retail Sales Continue to Slide

November 18, 2008--Retailers had a grim month in October as sales were down compared to September. As the nation enters a recession, industrial activity is generally weak, although industrial production increased slightly in October. Exports, which have recently been a significant driver of economic growth, declined in September, and imports fell as well. Last, the budget deficit narrowed in October.

 

International Trade
According to the Bureau of Economic Analysis, the U.S. trade deficit in goods and services narrowed to $56.5 billion in September, following a narrowing to $59.1 billion in August. Both exports and imports plunged in September, at 6% and 5.6%, respectively. Exports of automobiles and civilian aircraft (it should be noted a major Boeing strike began on September 6) hindered American export growth. Furthermore, a decline in oil imports, specifically from OPEC, helped to narrow the trade deficit. In September, imports from OPEC nations plunged 30.4%. With economies around the world reeling from the financial meltdown, imports and exports will weaken because of global liquidity problems.

 

Retail Sales
In October, total retail sales plummeted 2.8% following a downwardly revised decline of 1.3% in September (originally reported as a decline of 1.2%). Slow sales at gasoline stations (-12.7%), auto dealerships (-5.5%), and furniture stores (-2.5%) were the largest drags on growth, though every sector of the retail market posted declines with the exception of grocery store sales (+0.3%). Core sales, which exclude sales made at gasoline stations and auto dealerships, posted a 0.5% decrease. On a year-to-year basis, top-line retail sales decreased 4.1%, while core sales are up 1% for the year. The trend of weak or negative growth should remain in the near term as beleaguered consumers, having spent their stimulus checks, face the financial meltdown, a weak labor market, and the housing crisis. Expect holiday sales to be weak this year.

 

Industrial Production
Industrial production increased 1.3% in October after falling 3.7% in September. Mining led the turnaround, up 6.1% after falling 8.5% in September. The manufacturing and utility sectors were also up. Manufacturing increased 0.6% in October after falling in September. Utility output increased 0.4%, following stronger growth in September. Capacity utilization increased to 76.4% from 75.5%. With continued weakness across the economy, expect industrial production to remain weak this quarter.