November 15, 2008 in Business

Retail sales fall at record pace

Decline led by huge drop in auto industry

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

The Commerce Department said Friday that retail sales fell by 2.8 percent last month, surpassing the old mark of 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 Bernanke said financial markets remain under “severe strain” in a speech Friday to a central banking conference in Frankfurt, Germany. 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 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 Dow Jones industrials fell almost 340 points and the major indexes all fell sharply for the second straight week.

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 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.

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