Retail sales fell 2.8% in October, marking the third consecutive monthly decline. The October drop is the largest since record keeping for the current series began in 1992. The sharp drop in gasoline prices led to a 12.7% drop in gasoline sales. Auto sales declined 5.5%; reports of unit auto sales have indicated this earlier in the month. Excluding autos and gasoline, retail sales fell 0.5% in October. Most major categories of retail sales posted declines October – furniture (-2.5%), apparel (-1.4%), building materials (-0.4%), electronics (-2.3%) and general merchandise (-0.4%). Food (0.0), restaurants (+0.3%), and health and personal care (+0.4%) were the only components of retail sales that did not decline in October.

In other related news, the University of Michigan Consumer Sentiment Index held nearly steady at 57.9 in the early-November survey vs. 57.6 in October. Grim news about the economy day after day is most likely to translate into weaker consumer outlook in the near term.

It is important to note that the boom in consumer spending has come to a screeching halt after an extended period of spending that began in the fourth quarter of 1991 and ended with the 3.1% annualized decline in real consumer spending in the third quarter (see chart 3). The drop in net worth of households resulting from declines in prices of homes and equity, the historically high debt levels of households and the debt service burden associated with the debt, the rising trend of the jobless rate, additional likely layoffs, and a serious lack of savings are factors that will hold back consumer spending.

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