Retail sales slumped to a record level during December 2008 in the US despite holiday season. The fall was mainly triggered by the global financial crisis.
Consumer spending in the US further slumped in December 2008 as more retailers, car dealers and restaurants experienced a decline in their sales, raising concerns on the US economy in 2009, as reported by THE WALL STREET JOURNAL.
Leaving auto sales that recorded a decline of 0.7%, retail sales dropped to the lowest level of 3.1% since the early 1990s when the record began to be maintained. According to the Commerce Department, food services and retail sales plunged a seasonally adjusted 2.7% to $343.2 Billion for the sixth consecutive month in December 2008 from November 2008. Compared to December 2007, sales slipped nearly 10% in December 2008, the highest annual fall since 1968.
Poor retail sales during December 2008 were a direct result of dull holiday season. Moreover, they indicated to the deeper recession than expected. In fact, the sales showed the worst performance in terms of decline. Whatever slight moderation experienced was primarily contributed by heavy discounts, which, in turn, reduced the profit margins of retailers.
Liquidity crunch in the credit market, weak commercial real estate market and poor labor market conditions were also responsible for the downfall in the retail sales. Moreover, household spending almost dried up due to the rise in unemployment to 2.6 Million and declining value of home and stock.
Pharmaceutical was the only category that showed some improvement because people were excessively buying aspirin to cope with the pain of the recession.
The record slump in retail sales and spending during the last month of 2008 is giving rise to fresh concerns of layoffs and cost-cutting which may expand the duration of downturn. Therefore, the number of retailers who will file for bankruptcy will rise in the coming months.
According to a Research Analyst at RNCOS, “The US retail industry is one of the most troublesome sectors to reorganize because it lacks hard assets. In addition, retail stores in the country are taken on lease, merchandise is sold on credit and a large number of retailers have debts, which is not a healthy sign for the industry. The downturn is likely to continue in 2009.”
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