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Plunging Auto & Gas Sales Hurt Retail Sales in November

Dragged down by plunging gasoline prices and an auto industry struggling for survival, retail sales fell by 1.8% in November for a record fifth straight month, according to the U.S. Commerce Department.

But a historic drop in retail gasoline prices and auto sales may have exaggerated the decline.  Filling-station sales mirrored the recent drop in prices from $4 a gallon in July to less than $2 a gallon recently. Auto sales fell 2.8%, confirming automakers’ assertions that business had sunk to the lowest levels in decades.

Excluding gasoline, which fell by almost 15%, retail sales fell just 0.2%.

In fact, without sales of autos, gasoline and building materials, sales actually rose 0.5%, the most since May.

“The financial markets were braced for a horrific retail sales report for November, but the numbers were actually not so bad,” Mark Vitner, a senior economist for Wachovia Corp. (WB), told MarketWatch.com.

Retail fell a projected 2%, according to the median estimate of 73 economists in a Bloomberg News survey. Economists consider retail sales to be a bellwether for the overall economy since it accounts for about 50% of all consumer spending.

There were some promising stats, however. Aside from the automotive sectors, sales surged in almost every other important category.  General merchandise store sales rose 1.3%, the biggest gain in three years. Electronic stores had a 2.8% jump in receipts.

Purchases at department stores rose by the most in three years as Americans took advantage of discounts by retailers from Macy’s Inc. (M) to Best Buy Co. Inc. (BBY) to start shopping for the holidays.

But while it appears retailers have been successful in getting consumers to loosen the spending reins with aggressive discounts, the devil may be in the details.  Retailers have been consistently warning that their profits will suffer from the heavy discounting they’re using to entice shoppers.

Neiman Marcus, the luxury retailer owned by ) and TPG Inc., which recently used heavy discounts to reduce inventories, said this week that profits dropped in the quarter ended Nov. 1.  Purchases of expensive goods are also falling because of tight credit restrictions imposed by banks.

Retail analysts have been increasingly concerned about “cherry-picking,” where consumers storm the aisles for heavily advertised items, but leave the store without making other purchases.

That has led some to question the validity of the numbers themselves.

“We are somewhat suspicious of the November results and believe that a seasonal adjustment quirk may have influenced the results," wrote David Greenlaw, an economist for Morgan Stanley (MS), MarketWatch reported.

Same-store sales in the U.S. fell 2.7% in November from a year earlier, the biggest drop since records began in 1969, the International Council of Shopping Centers said last week.

And aworsening labor market is unlikely to sustain any rebound.  The employment outlook is likely to drag down holiday shopping, a time when many stores expect to reap up to half of their annual revenue.

The unemployment rate climbed to 6.7% percent in November, the highest level since 1993. Employers have cut 1.9 million workers from payrolls so far this year.  Surging unemployment usually leads to a plunge in consumer confidence and spending cutbacks.

A dismal holiday shopping season also bodes ill for retail sales throughout 2009.  That could likely lead to a consolidation in the sector with many retailers closing their doors for good.

In fact, bankruptcies of stores such as Sharper Image Corp. (OTC: SHRPQ) and Circuit City Stores Inc. (OTC: CCTYQ) are already having a negative effect on the sale of gift cards, with consumers afraid to bet on long-term survival of some retail franchises.

Counting on the survivors being the heavy discounters such Costco Wholesale Corp. (COST) and the world’s largest retailer, Wal-Mart Stores Inc. (WMT).

"This is Wal-Mart time," Chief Executive Officer H. Lee Scott Jr. told Wall Street analysts during an Oct. 27 presentation at company headquarters in Bentonville, Ark., BusinessWeek reported. "This is the kind of environment that Sam Walton built this company for."

News and Related Story Links:

• MarketWatch:
  Retail sales fall 1.8% in fifth straight decline

• Bloomberg:
  Retail Sales in U.S. Probably Fell for Fifth Month in November

• BusinessWeek:
  For Exiting Wal-Mart CEO, a Victory Lap

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Don Miller is an Contributing Writer at Money Morning.