U.S. Consumers Dropping Shopping

U.S. Consumers Dropping Shopping

Carl Gutierrez, 11.14.08, 01:45 PM EST

Bernanke holds out rate-cut hopes as government reports October retail sales dive.

How low can you go Ben Bernanke? The Federal Reserve chairman, speaking in Germany on Friday, left open the door to new interest rate cuts as U.S. retail sales data offered a desultory view of the American economy.

On Friday, the U.S. Commerce Department reported a 2.8% drop in October retail sales, more severe than Wall Street's already dour 2.1% predicted drop. When the problem-plagued auto industry was excluded, retail sales still fell by 2.2%, nearly twice the 1.2% analysts had expected.

Separately, the U.S. Labor Department said the October import price index fell 4.7% month over month, a few ticks more than the 4.4% drop expected by Wall Street, for the biggest one-month drop since 1988. Year over year, the import price index gained 6.7%, short of the 8.2% expected by analysts.

While waning inflation is generally considered a good thing, it can also be taken as a new sign of economic weakness. Benefiting from both aspects, government bond prices rose, with the yield on the benchmark 10-year U.S. Treasury note sliding to 3.72%, from 3.82% late Thursday. Equities suffered from the dour economic data. (See "Street Starts Off On Wrong Food.")

Amid the gloom, there was one bright note. The Reuters/University of Michigan consumer sentiment index made a surprise jump to 57.9, from 57.6 in October. Still, the index is near the 28-year low of the 56.4 reading given in 1980.

"The good news is there was a bit of an uptick in consumer sentiment, but frankly I think it's going to be a pretty lousy fourth quarter," Wyss said. "Hopefully things aren't going to be down 2.8% every month, but things aren't going to turn around in a hurry."