WASHINGTON - Consumers reduced their spending at retail stores again last month, while wholesale prices continued to drop - both signs of a deepening recession.
The reports on prices and retail sales were released yesterday by the government, and a third provided more bad news for the economy: Businesses cut their inventories by the largest amount in five years, which likely means manufacturers will cut production in coming months.
The Commerce Department said retail sales dropped 1.8 percent in November. The decline was the fifth straight monthly drop, a record stretch of weakness. The decline was slightly less than economists had expected and resulted from big discounts that drew in shoppers to department stores and electronics retailers.
"As we get into next year, it'll become more and more evident that the consumer is a big weight on economic growth," said Joshua Shapiro, chief U.S. economist at at consulting firm Maria Fiorini Ramirez Inc., in New York.
The sales downturn was led by a 2.8 percent fall in auto sales, which had been expected, since automakers had reported already that November was their worst sales month in more than 26 years.
But purchases at department stores rose the most in three years as Americans took advantage of price-cutting by such retailers as Toys R Us Inc. and Neiman Marcus Group Inc.
The Producer Price Index, which tracks the cost of wholesale goods - that is, a step before they reach consumers - fell 2.2 percent last month as gasoline and other energy prices retreated, according to the Labor Department. That followed a record 2.8 percent plunge in wholesale prices in October, and November's price drop was larger than the 2 percent decline economists expected.
Falling prices might sound good for buyers, but a prolonged, widespread decline would do serious economic damage, dragging down incomes, clobbering home prices even more and shrinking corporate profit.
The Commerce Department also said businesses slashed the inventories they have held on shelves and back lots 0.6 percent in October, three times the 0.2 percent decline economists expected. It was the biggest cut in inventories since August 2003.
Inventories are closely watched signals of business confidence. When companies are reducing their stockpiles because they are worried about future sales, it can further depress overall economic growth.