By  on January 15, 2009

WASHINGTON — Dismal retail traffic and consumer spending in December lead to an unprecedented decline in holiday sales.

The U.S. Commerce Department reported Wednesday that sales for the month plummeted 9.8 percent below December 2007, the first year-to-year decline since such records started being kept in 1968. On a month-to-month basis, all retail and food service providers reported a seasonally adjusted decrease of 2.7 percent to $343.2 billion. For all of 2008, retail sales were down 0.1 percent from the previous 12-month period.

Sales at specialty retailers fell 2.5 percent in December compared with November, while department stores slipped 2.3 percent. Compared with December 2007, receipts at apparel stores plunged 7.1 percent to $17.4 billion at specialty stores and 7.2 percent to $16.1 billion at department stores.

“This is not just a bad report, this is really a remarkable report,” said Charles McMillion, president and chief economist at MBG Information Services. “It is sending shock waves through both producers and retailers. It means we’re going to see a bloodbath of retail firms and jobs lost over the next six months.” He said depending on how President-elect Barack Obama’s economic stimulus package comes together, overall job losses could still far outnumber the number of jobs saved.

While December sales numbers were widely expected to decline, the results were much worse than expected, exceeding consensus predictions by more than double.

“The current economic crisis proved to be more challenging than any had anticipated,” said Rosalind Wells, chief economist at the National Retail Federation. “Consumers showed they were more than willing to wait out retailers this year, causing increased pressure on prices.”

NRF’s analysis showed the first decline in holiday sales since the association started tracking figures. Weakness was noted particularly at clothing and accessories stores, home furnishing and furniture stores, and electronics and appliance retailers. According to NRF data, apparel stores showed a seasonally adjusted 2.5 percent month-to-month decline and a 9.4 percent year-to-year drop.

“The December report is another stark reminder of the extensive damage to consumer confidence and spending from the deepening recession,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight.

The only positive note of the retail sales report was a further drop in gasoline prices, which slipped 15.9 percent in December, economists noted. Gasoline prices tumbled 42.1 percent in the last half of 2008 and were 35.5 percent lower in December compared with a year earlier, noted McMillion.

Anecdotal evidence from the Federal Reserve’s Beige Book report, also released Wednesday, supported the weak holiday numbers from the Commerce Department. Reports from most of the Fed’s districts were negative and focused on widespread, deep discounting during the holiday season. Retailers in Boston, New York, San Francisco, Philadelphia, Atlanta, Chicago, St. Louis, Minneapolis, Dallas and Kansas City said holiday sales were weak. Some retailers in Boston and New York said sales did pick up a little after the holidays.

Discount stores generally fared better, with many areas reporting luxury items and big-ticket purchases, such as jewelry and electronics, were particularly weak performers. Retailers in Boston were cautious in the forecast, citing an expectation that consumers will “hunker down” in the coming months. Retailers in New York said sales were sluggish but not disastrous.�

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