Retail sales and prices of goods imported to the US dropped by the most on record, signaling the economy may be in its worst slump in decades. Purchases fell 2.8 % in October, the fourth straight decline, the Commerce Department said today in Washington. Labor Department figures showed import prices dropped 4.7%, pointing to a rising danger of deflation. A private report said consumer confidence this month remained near the lowest level since 1980, according to Bloomberg.
Circuit City filed for bankruptcy. Best Buy (BBY) said sales were down and gave even lower guidance for Christmas. Nordstrom's (JWN) cut its profit forecast for the third time this year.
It’s a perfect storm for retailers. Consumers are having a negative wealth effect as stock and housing prices have plunged, taking almost $20 trillion out of US consumer assets. Unemployment is rising and consumer confidence is at the lowest levels since the last major recession in 1980-82.
The unemployment numbers that came out this week were particularly grim. Jobless claims on a seasonally adjusted basis showed 516,000 newly unemployed. But that masked an even deeper actual number of 540,000. The largest previous number for this week was back in 2001 and was 420,000. Actual weekly numbers can be volatile, but such an increase is certainly disconcerting.
I should point out that as of the end of September there were 3.3 million job openings, down slightly from August. It’s not as if there are no jobs being created or available. But, the number of people looking for work for over 8 months is high and rising fast, so there is a serious mismatch of the jobs available and the desire or ability of people to take them.
Continuing claims are now at roughly 3.5 million individuals who are getting unemployment insurance. Let's assume that each week we lose an average of 400,000 jobs. That is 20 million jobs a year. That means the US economy for the last year has created roughly 16.5 million jobs. So there is some robustness in the economy even as we slide deeper into recession.
But what happens if we see the number of new unemployment claims rise to an average of 500,000 for a period of time? Without more job creation, that would mean an increase in unemployment of 1,000,000 people in just 10 weeks. This week we have seen an increase in continuing claims of 141,000 from just last week. That, gentle reader, is very grim if it were to continue. Unemployment is likely to continue to rise throughout most of 2009, closing in on 8%.
This time of year should see some seasonal rise as retailers begin to hire for Christmas. But with retail sales down and facing the likely prospect of negative growth in Christmas sales for the first time ever, seasonal employment is evidently not responding.
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