Retail sales in the U.S. dropped in October by the most on record, pushing the economy toward the worst slump in decades.
The 2.8 percent decrease was the fourth consecutive drop and the biggest since records began in 1992, the Commerce Department said today in Washington. Purchases excluding automobiles also posted their worst performance.
Spending may continue to falter as mounting job losses, plunging stocks and falling home values leave household finances in tatters. Retailers from Best Buy Co. to Nordstrom Inc. are cutting revenue forecasts ahead of what may be the worst holiday shopping season in six years.
``We are in the eye of the storm,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who accurately projected the decline in sales. ``The recession is clearly intensifying. The next few months will look pretty bad. The fourth quarter will be even weaker.''
According to the Census data all areas took a major hit: Autos -5.5%, electronic retailers -2.3%, department stores -1.3%. In other words, the consumer is really cutting back on spending. Here's the relevant graph from the Census information:
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This shouldn't be a surprise. The stock and real estate markets are in terrible shape and the employment picture is horrible. Put these two things together and you get a consumer led contraction.
As a result, several retail sectors are in terrible technical shape, trading at or near multi-year lows:
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However, there is something good emerging from this. When consumers don't spend on stuff they save. And on that front, banks are helping out:
Banks across the U.S. are engaged in a heated competition for deposits as the battered industry tries to shore up its funding sources.
From giant Citigroup Inc. to tiny S&T Bancorp Inc. -- which is based in Indiana, Pa. and has just 55 branches -- banks are responding to uncertain times by sharply increasing the interest rates paid on deposits.
The result is a boon for consumers hungry for higher returns as the stock market lurches. But the moves are causing pain for large and small banks across the U.S. by squeezing their profit margins.
The desire to lure depositors is triggering a "national price war," says Michael Poulos, a partner at financial-services consulting firm Oliver Wyman. "In the past 15 years, there's been nothing like this. The level of competitive intensity is unprecedented right now."
The deposit-collecting binge could help banks build up the funds needed to make new loans. That could help ease the credit crunch choking the economy.
Banks are starting to attract customers the old fashioned way; they are luring people by paying them a meaningful rate on their deposits. Simply put, banks must return to standard, nuts and bolts banking. They need to increased their deposit base to make loans. And the way to do that is to acquire depositors. So while the retail news is bad in the short run, it looks as though an important and fundamental change may be starting. And that's a good thing.
6 comments:
Um, on which planet. Bankrate.com and my own personal experience disagrees with the notion that banks are competing to get deposits. Over the past year interest rates have plummeted and are still dropping. Short of some "hot money" CD's rates have sucked and are only getting worse.
As long as the fed is flooding the market with liquidity and supporting the banks this situation will not improve.
BTW, the "old-fashioned way" of attracting customers to banks was NOT to compete on interest rates -- it was to offer toasters, blenders, or some other junky appliance because the interest rates they could pay were fixed by the government.
Interest rate competition didn't really exist until the late 1970s.
We're still waiting for anything reasonable to show up at our banks. They must be hurting for cash so bad that it's not worth the time and expense to draw in money from small-fry working stiffs.
Hi Hale,
I've enjoyed your work for the last two years. You're mixture of TA with practical and fundamental analysis has provided a pragmatic approach to tackling these fascinating markets. It's a site such as yours that has inspired me to start my own macro and trading blog. I just wanted to say thank you.
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I double checked BofA to see if they'd upped they're rates. It is true, the savings rate has gone from .05% up to .2% and the CD's are up to 2.5% (I think they were at 2.1 or 2.2, never watched them much)
Not really much of an incentive since even the Yen I keep in a box on my desk is getting over 10% apr. They're going to have to do a lot better than .2% if they actually want to draw in deposits.
Internet Savings rates are going up. We just moved money from our Credit Union to a bank with good Bankrate rating because they had lover minimum balance and no fees. Also let us move money back into the Credit Union at will, though they tie it up for 30 days on first deposit and 10 days on subsequent.
Suggest going to their Money Market High Yeild and Savings comparison page. Rates are much higher than those quoted by commenters above.
When I shared Bondad's writing about this with a banker where we got our mortgage and told him I wished he had better rate, he said that the banks who are in trouble were the ones offering the high rates. His bank was not in trouble, so they were not.
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