U.S. retail sales showing worst in 3 years

U.S. retail sales suffered their biggest drop in September in three years as Americans looked to reduce spending ahead of the crucial Christmas selling season.

According to figures released by the U.S. Census Bureau on Wednesday, U.S. stores sold 1.2 per cent fewer goods last month compared to August.

Analysts had been expecting a drop in the month, given the flurry of bad economic news in the United States and other industrialized countries, but had estimated a slippage of only 0.7 per cent.

The September showing was the poorest month-to-month performance since August 2005, and the $374.5 billion US in goods sold represented a fall of one per cent compared to the previous September.

Pronounced weakness in the car market drove the overall U.S. sales figures south.

The sales of automobiles slumped 3.8 per cent in the month. Once cars were dropped from the calculation, U.S. retail receipts fell 0.6 per cent.

Still, economy watchers were surprised by the weakness across most categories.

"We thought that there might be a reversal of some outsized August declines in electronic and department stores, though that was not the case with both categories dropping 1.5 per cent in the month," said RBC Economics in a commentary Wednesday.

Chilly economic winter

Since the global financial crisis hit markets at the beginning of September, economists had been bracing for a wave of bad economic news as the poor equity markets get translated into job cuts and lower incomes.

Indeed, the dismal financial outlook has already been included in some economic forecasts.

For instance, RBC now predicts that consumer spending in the United States — a measure of retail demand — will drop until the 2009 May-June period.

By contrast, the bank forecasts that the growth in Canadian durable good sales will remain higher than 2.5 per cent throughout the same period.

Gathering retail storm clouds

Other retail indicators also point to slowing sales leading up to Christmas, a time when retailers gain as much as 50 per cent of their revenue.

The U.S.-based International Council of Shopping Centers said U.S. chain-store sales rose by a mere one per cent in September, the poorest performance since September 2001.

"Although hurricanes wreaked havoc on some chains’ performance, the primary story retailers cited for the September sales weakness was the financial crisis and the economy," said the ICSC in an earlier report.

In September, one prominent expert said the long-awaited bankruptcy wave among overextended retailers might now be upon the sector.

"People have been projecting a restructuring boom coming in the next 18 to 36 months for the last 48 months, and we may finally be seeing the truth to those projections," said James Sprayregen, managing director of Goldman's investment banking division speaking in New York.

So far this year, prominent sellers, such as Linens 'n Things, have filed for creditor protection as higher oil prices and falling consumer demand crimped their revenue outlook.