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December retail sales dip with outlook weak for 2008

Sales dipped 0.4 percent last month, and consumers may pull back more.

By Ron SchererStaff writer of The Christian Science Monitor / January 16, 2008

Economic talk: Speaker of the House Nancy Pelosi (D) and Fed Chairman Ben Bernanke met Monday. Congress is considering an economic stimulus package.

Joshua Roberts/Reuters

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New York

The economy is not getting much help from the consumer.

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Instead, economists see signs that Americans are starting to become much more cautious about spending as they worry about their jobs, the rising price of energy, and the falling values of their homes.

If consumers continue to slow their spending, economists believe the economy will move into a recession – the first economic downturn in about six years. A consumer pullback may well prompt the Federal Reserve to be even more aggressive in cutting interest rates, which makes it less expensive for people to borrow money. In addition, retail experts are urging department stores to begin major promotions to get consumers back in the spending mode.

On Tuesday, consumer reticence was in evidence when the Commerce Department reported that December retail sales fell by 0.4 percent from November's level. At the same time, the International Council of Shopping Centers reported that sales at chain stores fell 0.9 percent for the week ending Jan. 12, compared with the previous week. The National Retail Federation also lowered its estimate of holiday sales growth to 3 percent, the slowest pace since 2002.

"Consumers are on the verge of packing it in, which means recession," says Mark Zandi, chief economist at Moody's Economy.com.

Consumer spending represents almost 70 percent of the US gross domestic product, so any consumer slowing will show up in America's economic performance. The darkening mood is spreading to the boardroom as well. On Tuesday, the Conference Board reported that its index of CEO confidence fell in the fourth quarter to its lowest level since 2000.

Their mood was not helped by news on Tuesday that wholesale inflation (the producer price index) rose by 6.3 percent last year, the largest increase in 26 years. "But in December, it does look to be moderating under the weight of the moderating economy," says Mr. Zandi. In December, the PPI fell 0.1 percent.

However, the focus of economists is likely to remain on the consumer.

On Monday, at the annual convention of the National Retail Federation (NRF) in New York, economist Rosalind Wells described her economic outlook as "guarded."

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