Retail sales plunge 2.7% in Dec., sink 0.1% for all of '08

WASHINGTON -- Retail sales dropped in December as prices plunged at gasoline stations and stores and consumers cut spending during the key holiday shopping season amid uncertainty about their jobs, incomes and the overall economy.

Sales dropped a seasonally adjusted 2.7% in December from November, marking the sixth consecutive monthly decline, the Commerce Department said Wednesday. Sales were down 9.8% from December 2007, the biggest year-over-year drop for a single month on record.

Retail sales in all of 2008 fell 0.1%, the first annual decline in the 40 years the government has been collecting retail data.

The decline in December, the most important month for many retailers, was far worst than expected by economists and point to "a deeper recession than previously anticipated," Bank of America senior economist Peter Kretzmer said in a note to clients. The U.S. economy has been in a recession since December 2007.

The decline in retail sales in part reflected lower prices as the data account for total sales, not volume. Sales at gasoline stations were down 15.9% in December from the prior month, the government said, reflecting the sharp plunge in the price at the pump.

But sales were down nearly across-the-board, suggesting that while some consumers got bargains, households cut back in nearly all areas of spending. Sales fell at car dealerships and stores selling furniture; electronics and appliances; building materials and garden equipment; clothing; and sporting goods and books and music. Spending at grocery stores and restaurants and bars also declined while sales at Internet retailers also posted a drop.

The only area tallying an increase was in the health and personal care store category, where sales rose 0.4%.

"Retailers are a hurting bunch," Naroff Economic Advisors president Joel Naroff says. "Undoubtedly, many small retailers will not make it to the end of the recession."

The sharp drop-off in consumer spending, which accounts for more than two-thirds of U.S. economic activity, is already leading some retailers to shut stores and cut jobs. Wednesday, Gottschalks, which operates department stores on the West Coast, said it was filing for Chapter 11 bankruptcy protection to reorganize its business.