Consumers went into hibernation as the full scope of the financial crisis took hold in October, according to the National Retail Federation. Retail industry sales for October (which exclude automobiles, gas stations, and restaurants) decreased 0.5 percent seasonally adjusted from September while increasing 1.3 percent unadjusted year-over-year.
October retail sales released today by the U.S. Commerce Department show total retail sales (which include non-general merchandise categories such as autos, gasoline stations and restaurants) decreased 3.3 percent unadjusted over last year and 2.8 percent seasonally adjusted from September. The discrepancy in U.S. Commerce Department and NRF’s retail industry sales numbers is based on major declines in the autos category, where sales dropped 25.9 percent from the same period a year ago and fell 6.2 percent month-to-month.
“Consumers went into hibernation in October while concerns about the economy were at a peak,” said NRF chief economist Rosalind Wells (pictured). “As economic uncertainty went from bad to worse, shoppers pulled back on everything but the basics to weather the storm.“
Sales were weak across most retail categories as consumers continue to focus on staple purchases. Sales at furniture and home furnishing stores decreased 13.2 percent year-over-year while decreasing 2.5 percent month-to-month. Electronics and appliance stores were down 5.7 percent from October 2007 and decreased 2.3 percent from the prior month. Clothing and clothing accessories stores fell 3 percent from the same period a year ago while decreasing 1.4 percent from September.
In spite of the challenging sales environment, there were a few bright spots in October. Health and personal care stores increased a strong 4.2 percent year-over-year and rose 0.4 percent from September. General merchandise stores, which include discounters, were up 3.5 percent from October 2007 but down 0.4 percent from the prior month.
NRF continues to forecast meager holiday sales growth of 2.2 percent and defines the holiday season as retail industry sales in November and December.
Commenting on the commerce department figures, Brian Bethune, chief U.S. financial economist of IHS Global Insight, said, “Consumers were already fighting to keep their heads above water in the third quarter, and in October they were thrown several heavy cement blocks in the form of steep declines in employment and hours worked, further declines in house prices, and a massive negative shock to household net financial assets.”
Bethune noted that the sharp decline in gasoline prices offset some of the negative factors, however, in his outlook he expects the downturn to continue into the fourth quarter. As the new year begins, government intervention and a continued drop in gas prices will begin to aid an economic recovery, he said.
“Negative accelerator effects from declines in employment, hours worked and net household worth are expected to hit the economy hard in the fourth quarter, despite further declines in gasoline prices. The steep dive in retail sales is also feeding back to reduce employment in the retail sales sector at a critical time of the year,” Bethune said.
“The economy is in the midst of the most difficult phase of this recessionary cycle. IHS Global Insight is expecting that the policy response to the current negative forces will be further amplified, including a further 50 basis point reduction in the federal funds target – effective overnight federal funds rate is already being managed to this lower target of 0.5% — expanded Federal Reserve lending in the commercial paper and money market, and an additional large fiscal stimulus package to be deployed in early 2009. In addition, gasoline prices are headed lower to the $2.00 to $2.50/gallon range. Those are very large doses of amphetamines that should ultimately revive a sick economy.”