Sunday, November 16, 2008

U.S. October Retail Sales Fall

U.S. October Retail Sales Fall

October retail sales came in much weaker-than-expected falling 2.8% in the month. This was much weaker than the 2.1% drop expected within financial markets and more than double the downwardly revised 1.3% decline recorded in September. (September was originally reported as down 1.2%).

A sizeable decline in nominal retail sales was widely expected based on earlier indications of weak auto sales and a sharp falloff in gasoline prices. That latter weighed on receipts at service stations and resulted in this component dropping a much greater than expected 12.7% in the month. (This represented a record monthly decline for this series, in its current form, going back to 1992.) The motor vehicle component was more in line with expectations dropping 6.2% in the month.

Excluding these two components, retail sales still moved lower though by a more moderate -0.46% which represented some marginal easing from declines of 0.54% and 0.79% in September and August, respectively. Declines in the most recent month were relatively broadly based and led by falling sales at furniture (-2.5%), electronic (-2.3%) and sporting goods (-1.6%) stores.

The sizeable decline in retail sales is in part attributable to the recent plummet in gasoline prices lowering service station receipts. However, it is also a reflection of a marked falloff in motor vehicle sales in the month to an abysmal 10.5 million units at an annualized rate. As well, the report makes clear that weakness in spending was not limited to motor vehicles as falling employment, weakening consumer confidence and tight credit all contributing to more broad-based weakness. These factors are not expected to ease up materially before year end resulting in consumer spending likely continuing to decline in the fourth quarter after the 3.1% annualized drop in Q3. With less offsetting strength coming from inventories and net trade, as was the case in Q3, fourth quarter growth looks likely to decline sharply with some downside risk to our current forecast of -2.0%. This will keep the Fed focused on maintaining accommodative monetary conditions as it acts to limit the extent of recessionary conditions. Our current forecast has growth continuing to decline through the first quarter of next year before gradually returning to positive growth though this is contingent on a steady improvement in financial markets and attendant easing in the cost of capital.

RBC Financial Group

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

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