United States retail sales fell 2.8% in October, the largest drop on record for the month and another sign that US consumers are clamping down amid the faltering economy, the Commerce Department reported Friday.
The sales decline for October was larger than the 2.65% fall in November 2001 after the 9/11 terrorist attacks. Consumer spending, which makes up two-thirds of US economic activity, is critical to retailers, particularly in the holiday season. The 2.8% drop marked the fourth consecutive monthly decline in retail sales and was much bigger than the 2% decline economists expected. The weakness was led by a 5.5% plunge in auto sales, the biggest drop since August 2005. Auto companies reported 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%, also a record decline, underscoring the widespread weakness last month. Economic slowdown has hurt demand for other products, including powerful high-end computers. One of the world's biggest makers of such computers, Sun Microsystems, says it will lay off as many as six-thousand people, or nearly one-fifth of the company's workforce. This month several US chain stores, including Macy's and Best Buy, have issued profit warnings for the rest of 2008. However the world's largest retailer, Wal-Mart, beat forecasts by reporting an unexpected 2.4% increase in sales in October. It said its range of discounted products attracted consumers shopping for bargains. A separate report by the US Labour Department showed import prices dropped 4.7% in October, mainly because of a significant fall in the price of fuel. Some members of US Congress and other critics say the economic crisis grew in part from lax oversight of the financial system. On Friday officials in Washington announced two efforts to keep closer watch over the troubled system. President George Bush nominated a federal prosecutor to watch for problems in the 700-billion USD rescue plan for the financial system. Neil Barofsky now heads efforts in New York to stop mortgage fraud and earlier worked on narcotics cases. His appointment still has to be confirmed by the Senate. And officials announced plans to tighten regulations of complex and obscure financial instruments like derivatives and "credit default swaps" blamed for making the economic crisis worse. Credit default swaps are a kind of insurance that pays lenders if borrowers fail to repay and they operate in a largely unregulated marketplace. Earlier in the week the US Commerce Department revealed that the US September trade deficit was at its lowest in nearly a year, 56.5 billion US dollars (down 4.4%), helped by declining oil prices. But overall imports fell 5.6% to 211.9 billion US dollars and not only because of oil, demand for imported goods dropped significantly. Similarly US exports faltered with a one month decline of 6% to 155.4 billion USD. The US trade deficit in the first nine months of 2008 is running at an annual rate of 712.7 billion USD, up from last year's 700.3 billion but still below the all-time high of 753.3 billion set in 2006.