The pressure has been raised on the US Federal Reserve to cut American interest rates by an immediate half a per cent to 3.5% after retail sales fell a surprisingly large 0.4% in December, the biggest month of the year for US consumers and retailers.
The news, which came with the shocking multi-billion loss for Citigroup and the second round of capital injections for it and the struggling Merrill Lynch, knocked the US stockmarket.
Monday's 170 point gain after solid earnings from IBM, was reversed, the Dow down more than 270 points.
No matter how you define a recession these days, the US economy has stalled and is sliding under. That's the message from the retail sales figures.
While the likes of mighty Wal Mart reported a small sales gain last month, the rest of the US retailing industry had a bad season. It will hurt earnings when they are disclosed in the next few weeks.
But the overwhelming message is that US consumers have shut up shop. Christmas, in the aftermath of the post Thanksgiving sales push at the end of November, is the major spending season.
That US consumers didn't spend in the volumes they were expected to means they have stopped driving the US economy.
Taken with the December jobs figures with the unemployment rate up to 5% (and up over the year), the economy has been badly damaged by the subprime mess, the housing slump and credit crunch.
Consumption drives the US economy: it accounts for around 70% of all activity in its various forms, and the most important is the spending by individuals. That's slowed and now reversed as the housing slump and gloom have enveloped the US economy in the past three months.
Optimists who believe booming exports will stop the US from slowing are kidding themselves. especially so when major consumers such as Europe and China are slowing (China less so) and Japan is also on the verge of recession.
Citigroup's dividend cut hurt investor sentiment, but it's the realisation that the retail sector, and consumer products companies, are in for some rough earnings reports that also contributed to the sharp sell-off.
The declines added to three weeks of losses that wiped out more than $US800 billion in value from U.S. shares and dragged the SP 500 to its worst start for a year since 1978.
The US dollar fell to the lowest level since 2005 against the yen,after the drop in retail sales bolstered speculation the economy is headed for recession.
US producer prices fell last month in a small bit of good news, meaning the inflationary concerns some in he Fed still have, might not be there. The Consumer Price Index isdue out tomorrow and if benign, could see an immediate Fed cut, before its scheduled meeting at the end of the month.
The US Commerce Department said sales at U.S. retailers fell 0.4% in December, capping the weakest year since 2002.
Sales declined for the first time since June, following a revised 1% gain in November (it was 1.2% originally).
The Commerce Department said said sales excluding cars also fell0.4%.
The drop in December sales was led by a 2.9%fall at building-material stores (such as Home Depot), the biggest since February 2003, reflecting the slump in housing.
Sales at clothing, electronics and sporting-goods stores also fell, all major areas of discretionary spending, and a good sign of the consumer pullback: its usually spend on food and other essentials, cutnon-important spending.
America's National Retailers Federation said that holiday sales byretailers climbed 3%, the smallest gain since 2002. That waswas smaller than the 4% rise the group had forecast for November and December.
Williams-Sonoma Inc a retailer of high value consumer cookware and other products for the home was a good example of what is happening in retailing and the market reaction.
It's shares fell 10% at one stage after it reported a decline in holiday sales last month and lowered its fourth-quarter profit forecast. Same store sales fell 0.4% for the nine weeks to December 30, confirming the extent of the wider downturn. Wal Mart and Target, the two major discounters were also sold off.
This drop in retail spending will cut the value of strugglingCentro's US shopping malls which have to be sold off if it is to have a chance of surviving. It's also bad news for the likes of Westfield and all those other companies in property who have plunged into the US in the past three to four years.
Commercial, industrial and housing are going to be "bloody' areas for investors in the next few months as values fall and losses rise.
