Retail sales fell a whopping 2.8% overall in October, and 2.2% when automobile sales are excluded -- both records. The declines topped forecasts for decreases of 2.1% and 1.2%, respectively.
The bulk of the declines were caused by a 12.7% drop in sales at gasoline stations; excepting automobile and gasoline sales, retail sales fell a comparatively smaller 0.5%, following decreases of 0.6% in September and 0.8% in August. The so-called "control group" -- which is used as source data for GDP and consists of retail sales minus gasoline sales and building materials -- fell 0.5% in October following decreases of 0.6% in both September and August. This key component now stands about 4% below the third-quarter average, which suggests that the personal spending portion of GDP will again contract sharply following the 3.1% rate of decline posted in the third quarter (worst since the second quarter of 1980).
Forecasts for fourth-quarter GDP are hence likely to skew toward -3% or -4%. GDP has not contracted at a 3% pace since the fourth quarter of 1990 and no quarter has seen a decline at a pace greater than 3% since the first quarter of 1982. As an aside, restaurant sales increased 0.3% in October and have not decreased since February.
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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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