Sales, Consumer Prices Probably Dropped: U.S. Economy Preview

Sales at U.S. retailers probably fell in December for a sixth consecutive month as the recession headed into a second year, economists said before reports this week.

Purchases fell 1.2 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 manufacturing output slid.

Consumers are pulling back as unemployment surges and declining home and stock values squeeze household wealth, hurting retailers from Wal-Mart Stores Inc. to Macy’s Inc. The figures will serve as a reminder to lawmakers of the urgency to act on President-elect Barack Obama’s stimulus proposals to try to stem the decline in growth.

“Job insecurity is weighing heavily on consumers and causing them to cut back dramatically, even with energy prices lower,” said Dana Saporta, an economist at Dresdner Kleinwort in New York. “Retailers are responding to the weakness in spending by slashing prices.”

The Commerce Department’s retail sales report is due Jan. 14. Purchases fell 1.8 percent in November.

Same-store sales dropped 2.2 percent in the last two months of 2008, making it the worst holiday shopping season in almost four decades of record keeping, the International Council of Shopping Centers said last week. Some merchants forsook profits by trying to lure customers with discounts as deep as 70 percent. Wal-Mart, Macy’s and Gap Inc. all cut earnings forecasts.

Rising Unemployment

Americans are paring back as unemployment last month rose to 7.2 percent, the highest level in almost 16 years. Employers cut 524,000 workers in December, bringing losses last year to 2.6 million, the Labor Department said last week. Job losses are likely to continue for most of this year, economists said, even if stimulus measures are quickly enacted.

Obama, who takes office Jan. 20, is proposing a two-year recovery plan that includes about $300 billion in tax cuts for individuals and businesses and infrastructure spending aimed at creating or saving 3 million jobs.

“If nothing is done, this recession could linger for years,” Obama said last week as he sought to drum up support for the stimulus package, which may total $775 billion.

The U.S. economy shrank at a 0.5 percent annual pace from July through September as Americans reduced purchases at a 3.8 percent annual rate, the first decline in consumer spending since 1991 and the biggest in 28 years, the government said last month.

The economic slump probably worsened in the fourth quarter as declines in business investment and construction intensified and consumers continued to pull back.

Manufacturing Slump

As demand weakens, manufacturers are cutting back. Output at factories, mines and utilities probably fell 1 percent in December, the fourth decline in the last five months, according to the survey median before the Federal Reserve’s report on industrial production due on Jan. 16.

Automakers are leading the downturn in output. Car sales fell 36 percent in December, capping the industry’s worst year since 1992. General Motors Corp. and Chrysler LLC, which got emergency federal loans to help stay in business, have broadened incentive programs to boost sales.

Fed surveys from the New York and Philadelphia region are also forecast to show the manufacturing contraction was ongoing in January. Those reports are due Jan. 15.

Slumping growth in the U.S. and abroad is dragging down demand for commodities, causing prices to plummet. The Labor Department’s consumer-price index, due Jan. 16, is forecast to fall 0.9 percent for December, a third straight monthly decline, according to the survey.

Gasoline Slides

A decrease in the cost of gasoline probably paced the decline, economists said.

Energy prices have plunged from their peaks in July, when a barrel of crude oil cost $147. Oil ended last week near $41 a barrel on the New York Mercantile Exchange.

Labor Department reports on Jan. 14 and 15 are forecast to show import prices and wholesale costs also fell last month.

The trade gap probably shrank in November to the lowest level in four years, reflecting the collapse in imported oil costs. The gap narrowed to $51 billion from $57.2 billion on October, according to the survey median.

Bloomberg