Fourth consecutive month of declines seen; sentiment, trade data on tap
WASHINGTON (MarketWatch) -- The election heard around the world has ushered in a political sea change throughout the United States.
But Barack Obama. the president-elect, can't look forward to smooth sailing. The recession, persistent distress in the housing and financial markets and mounting job losses will demand his attention, even as immediate remedies may prove elusive. Upcoming data on retail sales are likely to show that consumers, strapped by a credit crunch and rising unemployment, are cutting back on spending.
Still, hope abounds. Thousands of Obama supporters reveled in front of the White House during Wednesday's wee hours. While their widespread elation was clear, one has to wonder how long such spirits will hold up during these tough times.
At a press conference Friday, Obama said a stimulus package is his top priority, and spoke about tough choices for a country with an economy plagued by job losses and financial crisis.
"I do not underestimate the enormity of the task that lies ahead," he commented. "We have taken some major actions to date, and we will need further actions during this transition and subsequent months." Read more.
Data in coming days will shed light on how far those actions need to go.
Dropping retail sales, consumer sentiment expected
On Friday, the government will report on retail sales for October. Given the credit squeeze, as well as exhaustion and despondence among consumers, bad news is expected.
Analysts see a fourth consecutive month of falling retail sales. A fourth drop would be the first time there has been such an extended decline since 1974.
For September, the Commerce Department reported that U.S. retail sales fell 1.2%, with weak results in almost all kinds of stores. For October, economists surveyed by MarketWatch are looking for a drop of 2% -- the biggest decline since 2001.
There is considerable pessimism at CIBC World Markets, where analysts are looking for a 2.5% decline.
"October will prove to be a disaster for retail sales, with only the discounters having anything to cheer about," wrote Avery Shenfeld, an economist for CIBC World Markets. "Note that the ex-autos number will partly reflect the drop in nominal gas-station sales on falling pump prices, and will therefore exaggerate the decline in real terms."
Credit Suisse analysts are looking for a 2% decline.
"The forces of tighter credit, a slackening labor market, falling household wealth and the deluge of negative news headlines are intersecting to create one of the worst backdrops for consumer demand," according to a Credit Suisse note. "As a consequence, vehicle sales collapsed in October and chain-store reports were softer than already scaled-back expectations."
In addition to restricted credit, consumer sentiment has been in the dumps and is no doubt tamping spending.
The Reuters/University of Michigan Surveys of Consumers results for early November will follow the retail report. In late October, U.S. consumer sentiment dropped a record amount from the prior month, hitting 57.6, compared with 70.3 in September. The survey's director said the recent sentiment loss means accelerated cutbacks in spending can be expected during coming months.
Trade balance
On Thursday, the Commerce Department will report the trade balance for September, and economists surveyed by MarketWatch are looking for a deficit of $57 billion.
The trade deficit has been narrowing since early 2007. While there could be further good news in the September report, it may be short-lived given the strengthening dollar and global weakness. Further, the most recent data on manufacturing from the Institute for Supply Management reported the biggest drop in factory activity in 26 years, as the exports component plunged.
The troubled U.S. economy is restraining imports, according to a research note from Bank of America analysts.
"The trade deficit likely plunged in September, its second consecutive decline," they said. "With commodity prices falling and the economies of our major trading partners weakening, the value of exports is expected to decline. Imports likely fell sharply, largely the result of a 26% tumble in petroleum prices."
For August, the U.S. trade deficit narrowed, as consumers curbed their spending on imported goods, by 3.5% to $59.1 billion. Overall imports were down 2.4% for the month, a technical boost to U.S. gross domestic product.
