December retail sales drop 0.3 percent

Retail sales drop 0.3 percent in December as sales for all of 2009 plunge by record amount

WASHINGTON (AP) -- Retail sales fell in December as demand for autos, clothing and appliances all slipped, a disappointing finish to a year in which sales had the largest drop on record.

The weakness in consumer demand highlighted the formidable hurdles facing the economy as it struggles to recover from the deepest recession in seven decades.

The Commerce Department said Thursday that retail sales declined 0.3 percent in December compared with November, much weaker than the 0.5 percent rise that economists had been expecting. Excluding autos, sales dropped by 0.2 percent, also weaker than the 0.3 percent rise analyst had forecast.

For the year, sales fell 6.2 percent, the biggest decline on records that go back to 1992. The only other year that annual sales fell was in 2008, when they slipped by 0.5 percent.

The 0.3 percent decline in December was the first setback since September, when sales had fallen 2 percent. Sales posted strong gains of 1.2 percent in October and 1.8 percent in November, raising hopes that the consumer is starting to mount a comeback.

Consumer spending is considered critical to any sustained economic revival since consumer spending accounts for 70 percent of total economic activity.

The December drop in sales was a surprise given that the nation's big retailers had reported better-than-expected results last week, reflecting a surge of last-minute holiday shopping. But even with the rebound reported by the nation's biggest chains, these retailers suffered their worst annual performance in more than four decades in 2008, according to data from the International Council of Shopping Centers.

The 6.2 percent fall in the government's retail sales figure is only the second decline on records that go back to 1992. In all other years, even during previous recessions, retail sales, which are not adjusted for inflation, have managed to increase.

For December, sales of autos dropped by 0.8 percent following a 1.2 percent rise in November.

Sales at specialty clothing stores fell by 0.6 percent while sales at general merchandise stores, a category that includes big retailers such as Wal-Mart, were down by 0.8 percent while sales at department stores were flat.

Sales at electronics and appliance stores dropped by 2.6 percent and sales at hardware stores dropped by 0.4 percent.

The weakness over the year reflected the battering that consumers have taken from the worst recession since the Great Depression, a downturn that has cost 7.2 million jobs and left households trying to rebuild savings depleted by losses on Wall Street and a crash in housing prices.

Economists are worried about consumer spending in the months ahead given their forecasts that unemployment, currently at 10 percent, will keep rising until perhaps midyear.

The overall economy, as measured by the gross domestic product, grew at an annual rate of 2.2 percent in the July-September quarter and many economists believe that growth strengthened even further in the final three months of last year. However, the worry is that GDP will slow significantly in the early part of 2010 unless consumers continue to spend.

For December, a diverse group of retailers including Costco Wholesale Corp., Target Corp., Macy's Inc. and TJX all reported increases. Luxury stores like Saks Inc. and Nordstrom also saw strong December sales gains and even Sears Holdings posted a small gain on rising sales at its Kmart chain.

Also helping to support retail spending in December was a hint of better days ahead for the battered auto industry. Automakers in the United States ended their worst year in almost three decades in December with slight improvements, led by gains in sales of small cars.