Steep Retail Sales Drop in December Adds to Economic Gloom

Sales were down 2.7 percent—more than double what economists predicted.

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Amid the seemingly unrelenting wave of bad economic news and despite retailers' wishes for a Christmas miracle, the Commerce Department reported that retail sales fell in December for the sixth month in a row.

Analysts had predicted a 1.2 percent drop in December sales from the previous month. Instead, sales tumbled twice that, by a seasonally adjusted 2.7 percent.

That put sales for December 2008 at 9.8 percent lower than the same month a year before. The biggest driver of the fall took place at the gas pump, where gas station sales tumbled 15.9 percent. If that fall is taken out of consideration, other retailers' sales fell 1.5 percent.

With consumer spending making up more than two thirds of the economy, that's even more worrying for economists, who still predict the recession to last into late 2009.

But the slump in sales wasn't the only negative news that came today. Nortel Networks, which makes telephone equipment, today filed for bankruptcy protection; it had announced 1,300 layoffs and reported a $3.4 billion loss for the quarter in November.

And Citigroup announced the first step in its plan to sell off assets in order to survive—sharing its Smith Barney retail division with Morgan Stanley, its longtime rival, in a joint venture.

The immediate response to the news on Wall Street? Unsurprisingly, a plummet in early trading. Investors are hoping that an announcement about how the $350 billion remaining of the financial bailout will be spent, or about the details of Barack Obama's $800 billion stimulus package, could soothe the market.