New signs piled up Thursday that the ailing economy is taking another turn for the worse, with a mounting toll on ordinary Americans.
Retailers reported the worst October sales figures since at least 1971, a grim harbinger for the holiday shopping season. The report sent stocks lower for a second straight day, handing the Dow Jones index its biggest two-day percentage loss since Wall Street’s October 1987 collapse.
Another dose of bad news is expected today, when the government reports on unemployment for October. Economists estimate that 200,000 or more jobs disappeared last month, about double the average this year. That would bring job losses to about 1 million in 2008.
“This is probably just beginning for the average worker and consumer,” said Ed Leamer, director of UCLA’s Anderson Forecast, who predicts that large job losses are likely to continue for five or six months.
“The consumer is going to do some serious belt tightening, which means that businesses won’t sell as much and that means employment is going to be cut,” Leamer said.
Americans are already reining in their spending. Sales at major chain stores surveyed fell by 0.9% last month compared with October 2007 -- and by 4.2% if discount king Wal-Mart Stores Inc. is excluded, the International Council of Shopping Centers said.
“These are awful numbers,” said Michael Niemira, the council’s chief economist. “All this concern about the financial markets caused consumers basically to freeze up any purchase that had a whiff of discretionary spending.”
Based on October’s numbers, Niemira lowered his holiday sales forecast to a 1% gain for the combined November and December period, down from his earlier estimate of 1.7% growth.
Luxury retailers in particular suffered, with high-end department store chains Neiman Marcus Inc., Nordstrom Inc. and Saks Inc. all posting double-digit declines.
Neiman Marcus is reducing inventory and marking down prices after suffering a staggering 26.8% sales decline, Chief Executive Burton M. Tansky said.
“We expect retail demand will remain weak for an extended period of time as our affluent customer reacts to the continuing volatility of the financial markets,” he said.
On the other end of the spectrum, Wal-Mart exceeded expectations and reported a 2.4% sales increase, excluding fuel sales. But even the world’s largest retailer is nervous.
Eduardo Castro-Wright, who heads Wal-Mart’s U.S. division, said he feared that consumers “have maxed out.”
“Our customers, like a bunch of Americans, are going through some hard times,” Castro-Wright said during a visit to Los Angeles last month. “Clearly the consumer is making a choice in terms of looking for better value to stretch their dollar and make ends meet.”
Other retailers that fared poorly included Abercrombie & Fitch Co., down 20% from a year ago, and San Francisco-based Gap Inc., which suffered a 16% drop.
The holidays could be some retailers’ last chance to turn things around, said Ken Perkins, president of research company Retail Metrics Inc. Several retailers have filed for bankruptcy protection in recent months, including Mervyn’s, Linens ‘n Things Inc. and Shoe Pavilion Inc., and more are expected to fold after the holidays.
“It’s going to be a very difficult holiday season for the retailers -- I think a lot of them are going to be fighting for their lives,” Perkins said. “Weaker players are probably going to get knocked out sometime next year.”
The one bright spot for most Americans is falling fuel prices. The slowing global economy helped drive oil prices lower for a second day Thursday, with crude oil dropping $4.53, or 7%, to $60.77 a barrel. That’s the lowest since March 21, 2007, and represents a 59% drop from the record high of $147.27 in July.
“Refineries around the world are reducing their runs because there is no demand for their refined products,” said Fadel Gheit, senior energy analyst with Oppenheimer & Co. “If the demand for refined product is weak, the demand for oil is weak.”
The economic vital signs were so poor that the International Monetary Fund predicted that the world’s developed economies would probably shrink for a full year -- the first time since World War II that the global economy was likely to take such a hit.
In a new forecast released Thursday, the fund urged governments around the world to increase spending to stimulate demand.
The European Central Bank slashed interest rates in a effort to do the same.
“The financial market may or may not have seen the worst,” said Harry Holzer, former chief economist for the Labor Department, who now teaches economics at Georgetown University. “But the real economy seems to be sliding downward pretty clearly.”
In Washington, the outgoing administration of President Bush pledged to work quickly and closely with the incoming administration of President-elect Barack Obama to contain the economic damage.
“A methodical and orderly transition is in the best interests of the financial markets and Treasury is committed to making sure that the incoming team can hit the ground running in January,” Treasury Secretary Henry M. Paulson said in a statement.
Obama plans to convene a meeting in Chicago today with his economic advisors against a backdrop of rising unemployment.
The Labor Department said Thursday that the ranks of long-term unemployed workers drawing weekly benefits rose to 3.84 million, the highest since 1983.
Today the government will report the unemployment rate for October. The rate was 6.1% in September -- reasonably low by historical standards, but still a significant increase over a year earlier, when the unemployment rate was 4.7%. Each 1% of unemployment represents about 1.5 million workers.
More companies are also announcing large-scale layoffs, including El Segundo-based toy maker Mattel Inc., which said Thursday that it would cut its payroll by 1,000 jobs worldwide.
“Job loss is very pervasive right now across industries,” said Jared Bernstein, a labor economist with the Economic Policy Institute. “It’s hard to find industries that are creating any jobs, other than healthcare and government.”
Although the consensus forecast was for a payroll decline of 200,000, rumors abounded on Wall Street that today’s report could be 250,000 or more. That helped send the Dow Jones industrial average down almost 450 points. The blue-chip indicator has fallen almost 930 points, or 9.7%, since Tuesday’s election.
“We’re now realizing that the unemployment rate is not going to stop at 7%. It’s now going above 8%,” said Tom Wirth, senior investment officer at Chemung Canal Trust Co. in Elmira, N.Y. “We’re now realizing the recession isn’t going to last just six to nine months. The market is now perceiving that it’s going to be longer-lasting.”
Times staff writers Walter Hamilton in New York and Ronald D. White in Los Angeles contributed to this report.