- The Washington Times - Saturday, November 15, 2008

Retail sales plunged by the largest amount on record in October as the financial crisis and the slumping economy caused consumers to cut back sharply on their spending.

The Commerce Department said Friday that retail sales fell by 2.8 percent last month, surpassing the old mark, a 2.65 percent drop in November 2001 in the wake of the terrorist attacks that year.

The decline in sales was led by a huge drop in auto purchases, but sales of all types of products from furniture to clothing fell as consumers retrenched.

The 2.8 percent drop marked the fourth consecutive monthly decline in retail sales, the longest stretch of weakness on record, and was much bigger than the 2 percent fall economists expected.

In a second report showing weakness, the government said businesses cut back on their inventories by 0.2 percent in September, the first decline since March 2007 and the biggest setback in more than three years.

Economists expected a flat inventories reading, and the drop could be a sign that businesses are trying to reduce stockpiles because of growing worries that sales will slump further in coming months.

Federal Reserve Chairman Ben S. Bernanke said in a speech Friday to a central banking conference in Frankfurt, Germany, that financial markets remain under “severe strain.” He pledged to continue working with other countries to deal with the crisis and left open the door to a fresh interest rate cut to help brace the sinking U.S. economy.

But hints from Mr. Bernanke that another interest rate cut might be possible appeared to have little effect on Wall Street as investors digested the downbeat economic reports.

The weakness in retail sales was led by a 5.5 percent plunge in auto sales, the biggest drop since August 2005. Auto companies reported that unit sales fell to the lowest level in 17 years as potential buyers, frightened by all the turmoil on Wall Street, stayed away from auto showrooms.

Excluding autos, retail sales fell by 2.2 percent, also a record decline, underscoring the widespread weakness last month.

Consumer spending accounts for two-thirds of total economic activity, and weakness in this area was the major factor dragging down overall economic growth in the July-September quarter. The gross domestic product fell at an annual rate of 0.3 percent during the third quarter, the strongest signal yet that the country has fallen into a recession.

Many economists think the GDP will drop by an even bigger amount in the current October-December period and will continue falling through the first two quarters of next year. They are expecting that the financial crisis, the worst in seven decades, will produce the country’s worst recession since the 1981-1982 downturn.

The government reported last week that the unemployment rate shot up to 6.5 percent in October, and many economists think it will top 8 percent before the economy starts to mount a sustained rebound.

The retail sales report showed that sales at general merchandise stores, the category that includes big chains such as Wal-Mart Stores Inc. and department stores, fell by 0.4 percent, while sales at specialty clothing stores were down 1.4 percent.

Sales at furniture stores dropped by 2.5 percent, with sales at appliance stores and sporting goods stores also showing declines.

One of the few areas to show an increase was the category that includes restaurants and bars, which posted a small 0.3 percent gain, perhaps reflecting the desire of some to seek solace during turbulent economic times.

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