Economic Reports for Wednesday January 14, 2009

In what was, for the most part, an expect report by the Commerce Department earlier this morning, retail sales for December plunged by 2.7%, marking the sixth consecutive month that sales have declined. The key catalyst to the decrease comes from recession-pinched consumers who have curtailed their discretionary spending drastically. Economist believe that this trend is likely to continue deep into 2009 as today’s reading came in more than twice what was expected, a decline in sales of 1.2%.

For 2008, yearly sales were down 0.1%, in sharp contrast to 2007’s total sales figures, which increased 4.1% from the prior year. Last year’s sales mark the first time that annual sales had fallen since 1992. Prior to the current reading, the lowest yearly sales totals was a 2.4% advance in retail sales back in 2002, shortly after the tragic event of 9/11 in 2001.

With consumer spending accounting for more than two-thirds of the country’s economic activity, look for the next GDP report to show steeper losses than the previous reading of a 0.5% decline in the 3rd quarter. In fact, economist anticipate that the U.S. GDP report for the 4th quarter could fall as low as 6%.

Looking further into the report, retail sales were hit the hardest at department stores, furniture stores, restaurants and hardware stores. Included in the declines was the lack of sales at auto dealerships, which saw sales slip 0.7% for December. Thus far, sales within the auto industry are down more than 22% from this time last year. If you were to exclude auto sales for the report, retail sales would have fallen by 3.1%.

In an additional release from the Commerce Department, a report on business inventories was revealed this morning as well. In it, businesses further reduced their inventories due to the economic environment during November. In total, inventories were cut by 0.7%, its largest reduction in more than seven years as companied continue to fight and struggle to remain operating by slashing costly inventory.

In the meantime, economists were looking for the recent inventory report to show a more modest decline of 0.5%. Today’s reading marks the third straight month that businesses have had to cut inventories in order to reduce their cost structures. November’s decline in inventories equates to a 5.1% decline in overall business sales for the month, much larger than the 3.9% drop in overall sales for October.

Data released by the Labor Department today showed that U.S. prices for imports and exports retreated for the fifth consecutive month during December as the price of oil and other related products decreased. In the report, the price for imports slipped 4.2%, after falling 7% in November. Today’s drop of 4.2% comes in lower than what economists had anticipated, a drop in prices of 5.3%.

Since the start of 2008, import prices have decreased by a record 9.3% as the world’s economy has dissipated, along with the decline in demand for crude and petroleum related products. Import prices of crude plunged 21.4% for December, following a decline in oil import prices of 28.5% in November.

On the other side, the price for exports from the U.S. slipped 2.3%, just above the 2% decline in prices in which economists were anticipating. The decline in export prices was lead by the weakened demand from such products as industrial supplies, food, agricultural products, and other materials. Throughout 2008, export prices plunged 3.2%, its largest yearly drop since 1998.

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