Retail Sales Probably Fell in January: U.S. Economy Preview

Retail Sales Probably Fell in January: U.S. Economy Preview

Feb. 10 (Bloomberg) -- Sales at U.S. retailers fell in January for a second month, signaling the biggest part of the economy may be starting to stumble, economists said before reports this week.

Purchases dropped 0.3 percent after decreasing 0.4 percent in December, according to the median estimate of economists surveyed by Bloomberg News ahead of a Feb. 13 report from the Commerce Department. Other reports may show factory production weakened and the trade deficit shrank.

Sustained declines in consumer spending brought on by falling property values and rising unemployment would confirm the economic expansion had come to an end, economists said. Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are scheduled to testify before the Senate this week on the economic outlook.

``The consumer has long been under stress and is now showing signs of cracking,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. ``The downturn is now spreading more broadly through the economy.''

The back-to-back decrease in sales would be the first in four years. Consumer spending accounts for more than two-thirds of the economy.

Auto Sales

Auto dealers are among retailers suffering from the slump in housing and employment. Cars and light trucks sold last month at a 15.2 million annual pace, down 6.7 percent from December. Industry sales this year are forecast to drop to the lowest level since 1998.

AutoNation Inc., the largest publicly traded U.S. car dealer, last week said fourth-quarter profit dropped to a six- year low as cooling economies in California and Florida, two states bearing the brunt of the decline in housing, pulled down sales.

The retail sales report may show purchases excluding automobiles climbed 0.2 percent, after a 0.4 percent drop in December, according to the Bloomberg median. An increase in receipts at service stations as gasoline prices rose probably contributed to the gain, economists said.

Falling stock prices and stricter lending rules also caused Americans to curb spending, even as retailers slashed prices by as much as 75 percent last month. Purchases at stores open at least a year rose 0.5 percent from a year earlier, the worst January since 1970, according to the International Council of Shopping Centers.

Macy's Inc., the second-biggest U.S. department-store chain, cut its fourth-quarter profit forecast last week and said it will eliminate 2,300 jobs.

`Difficult' Environment

``It is a difficult retail environment out there, and I expect it will be going forward,'' Terry Lundgren, chief executive officer of Cincinnati-based Macy's, said in an interview last week.

Americans are growing more pessimistic as job losses mount, home values fall and fuel prices rise. The Reuters/University of Michigan preliminary index of consumer sentiment for this month fell to 76, from 78.4 in January, according to the survey median ahead of a Feb. 15 report.

As U.S. demand wanes, the economy is becoming increasingly dependent on overseas orders to help avert a collapse in manufacturing growth. Output at factories, mines and utilities rose 0.1 percent in January after stalling the prior month, economists said ahead of a Fed report Feb. 15.

A Commerce Department report on Feb. 14 may show the trade deficit shrank in December for the first time in four months as the cost of imported oil fell, according to economists surveyed.

Lower Dollar

A drop in the dollar's value, which makes American goods cheaper for buyers overseas, also kept exports growing last month and narrowed the gap to $61.5 billion from $63.1 billion in November, the survey showed.

Bernanke and Paulson testify before the Senate Banking Committee on Feb. 14. Investors and analysts will be trying to gauge how worried policy makers are about the extent of the economic slowdown.

``We expect Bernanke to admit that the downside risks to growth have risen substantially,'' said Drew Matus, a senior economist at Lehman Brothers Holdings in New York, who forecasts central bankers will lower the benchmark interest rate by another half percentage point to 2.5 percent at the March meeting.

A U.S. recession over the next 12 months is now an even bet, according to a Bloomberg survey of economists taken from Jan. 30 to Feb. 7. The odds rose from 40 percent in January.

BLOOMBERG