The nation's retailers turned in the worst sales figures in more than 35 years on Thursday, evidence that the financial crisis is further distressing everyday consumers at the start of the holiday shopping season.
With soaring foreclosures feeding the country's economic woes, Federal Reserve Chairman Ben Bernanke pleaded Thursday for more government action to relieve the foreclosure crisis and break a vicious cycle in which the housing meltdown is plunging the country deeper into recession.
Foreclosures remain "too high," hurting homeowners, lenders and the broader economy, Bernanke said. Lenders appear on track to initiate 2.25-million foreclosures this year, up from an average annual pace of less than 1-million before the crisis, he said.
With the economy sinking faster, companies are cutting more jobs. A round of more than 15,000 layoffs announced Thursday by AT&T Inc., DuPont and Viacom Inc. suggests that a yearlong wave of job cuts is accelerating. The government is expected to report a higher unemployment rate for November today.
The latest layoffs coincided with a government report showing the proportion of workers continuing to receive jobless benefits has matched a level last reached in September 1992, though the number of new applications for benefits dipped to 509,000 last week. Even with the drop, though, the figure was still high.
A broad spectrum of retail stores posted double-digit declines. For many chains, the sales drops that took hold in September and October got worse, not better, in November, despite relatively strong sales in the few days after Thanksgiving.
The International Council of Shopping Centers described November's figures as the weakest in more than 35 years. Declines were recorded in every retail segment the group tracks, the biggest coming at department stores, with sales down 13.3 percent compared with November a year ago, and specialty apparel retailers, down 10.4 percent.
One notable exception from the largely grim sales results: Wal-Mart posted sales gains.
Consumer spending, which includes retail sales, accounts for about two-thirds of total economic activity. Job cuts, tanking investment portfolios and sinking home values have made U.S. consumers, who have powered the nation out of previous recessions, wary of spending. They are turning away from their most potent tool — credit cards — amid the tightening of consumer credit, sending retailers into a tailspin.
According to an analysis by Citi Investment Research, the constriction in lending that began earlier this year points to at least a 5 percent decline in consumer spending on goods during the heart of the holiday season. A Consumer Reports survey showed more than half of shoppers intend to rely less on credit this Christmas. One retailer, Circuit City, has already blamed the meltdown in credit for sending it into bankruptcy protection last month.
"If you're a retailer right now, you see the contraction in consumer debt as a problem," said Jerry Welch, head of prepaid card service nFinanSe.
Credit card charges enjoyed annual double-digit growth from 2004 to 2006, according to the Nilson Report, which tracks payment systems. Last year, annual growth slowed to 8 percent. This year, credit purchases are expected to rise only 3.3 percent.
Consumers say they are putting away the plastic for several reasons. Some are buried under debt — delinquencies have reached record highs. Or they have been hit by recent increases in interest rates and reduced limits, eroding their spending power.
In another sinking trend, oil prices were settling near four-year lows, below $44 a barrel today in Asia as the bad U.S. economic news soured the outlook for global growth and demand for crude.
Bernanke suggested exploring the following housing options:
• Easing the terms of a government program called Hope for Homeowners. The program lets distressed homeowners refinance into more affordable, federally insured mortgages if the lender writes down the amount owed on the mortgage and pays an upfront insurance premium.
• Easing the terms of a loan-modification plan put forward by the Federal Deposit Insurance Corp. that seeks to make mortgage payments more affordable. The FDIC put this plan into effect at IndyMac Bank, a large savings and loan that failed this year, and has used it to modify mortgages at other financial institutions.
• Having the government buy delinquent or at-risk mortgages in bulk and then refinance them through Hope for Homeowners or another government program.