Retail sales plummet 2.7 percent in December

The decline was twice as large as expected.

WASHINGTON (AP) — Retail sales plunged far more than expected in December, ending a dismal holiday season with a record sixth straight monthly decline, and there’s no relief in sight as consumer demand remains weak.

The Commerce Department reported Wednesday that retail sales dropped 2.7 percent last month, more than double the 1.2 percent decline that Wall Street expected.

The December plunge in sales, which followed a November drop revised downward to 2.1 percent, confirmed private sector reports that retailers had suffered their worst holiday shopping season since at least 1969.

For the entire year, retail sales were down 0.1 percent, a sharp turnaround after a 4.1 percent gain in 2007. It was the first time the annual retail sales figure has fallen on government records going back to 1992. Before 2008, the weakest year for retail sales had been an increase of 2.4 percent in 2002, the year after the 2001 recession.

Another report from the Federal Reserve showed that the economy started the new year on weaker footing. Consumers cut back, hurting retail sales and forcing factories to cut production.

“Overall economic activity continued to weaken,” the Fed concluded in a report based on information collected between late November and Jan. 5.

The weakness in consumer spending has been a prime contributing factor to the economy’s current swoon and analysts say they don’t see that turning around soon. They predict the current recession, already the longest in a quarter-century, will continue at least until the second half of this year.

In a separate report, the Commerce Department said businesses cut their inventories by 0.7 percent in November, the largest decline in seven years and the third straight month that stockpiles were reduced as companies scramble to cope with huge declines in sales. Total business sales fell by a record 5.1 percent in November, the government said.

The worry is that the current downturn will be intensified if businesses keep slashing inventories, which will trigger further cutbacks in production and increased layoffs.

This week alone, regional department store chain Gottschalks Inc. put itself up for sale and said it had filed to reorganize in a Chapter 11 bankruptcy, discount clothing chain Goody’s Family Clothing also filed for Chapter 11 bankruptcy protection, and luxury department store retailer Neiman Marcus Group Inc. said it was cutting about 375 jobs.

Macy’s Inc. last week said it will close 11 underperforming stores in nine states, affecting 960 employees. The department-store operator also lowered its forecast for the fourth quarter after one of the weakest holiday seasons in years.

Since consumer spending accounts for about two-thirds of total economic activity, the retail weakness is a major factor depressing overall economic activity. The country fell into a recession in December 2007, reflecting a severe slump in housing.