Retail sales plunged by a record amount in October as shoppers reined in spending with home prices falling, although plunging gasoline prices also reduced outlays by consumers.
Sales slumped 2.8 percent last month to a seasonally adjusted $363.7 billion, the largest decline since the series began in 1992, the Commerce Department said. The previous record was a 2.65 percent drop in November 2001 in the wake of the terrorist attacks that year.
Retail sales fell 1.3 percent in September. Meanwhile, consumer confidence rose unexpectedly, according to a survey released Friday, as tumbling gasoline prices offset worries about unemployment and recession. [full story here]
There are two reasons that consumption has dropped. Both seem to me like good reasons.
One is that the cost of things has dropped. Home prices during the last year and gas prices in the last couple of months have plunged. If you "consume" the same amount of gas or new houses, your total consumption drops. That seems like a good thing.
Today at Costco, gas prices were 2.09 a gallon - down about $114.00 a gallon from just months ago. I felt so excited about the low price that after I filled up I drove around the block and came back for more. I repeated the drill half a dozen times - I just could not resist filling up when prices were so low.
Home prices are down. My children have got a chance to actually buy a home here in San Diego someday. Why people thrill at rising home prices escapes me. Housing - like fuel or clothing - is a cost and if it is lower we have more money for other things.
And finally, consumption is down. Keep in mind that we've been saving about 0% of our income for the last decade or so. This kind of behavior falls into the category of unsustainable. We can't continue to consume at such a rate. That consumption has dropped is great. It suggests that we have a chance to get savings and spending set at rates that can be sustained for more than a mere decade or two.The bad news is that the economy is staggering. The good news is that this difficult adjustment might just result in a new level of consumption that can be sustained. It doesn't surprise me that consumer confidence is up.