Washington Signs that the recession will be long and severe mounted Friday with a fresh round of bad economic news, including plunging sales from manufacturers to stores and falling prices that raise fears of dangerous deflation.
The widening economic troubles did put a lid on inflation. But they raised concerns about the opposite threat — the potential for a bout of deflation that could drag down incomes, clobber home prices even more and shrink corporate profits.
“Everything is going wrong in the fourth quarter,” said Mark Zandi, chief economist at Moody’s Economy.com. “We have collapses in consumer spending, housing and now investment. Business is just shutting down.”
The new batch of data showed retail sales fell by 1.8 percent in November, marking a record fifth straight monthly decline. The weakness was led by another sharp drop in auto sales — the worst sales month for automakers in 26 years.
A second report from the Commerce Department showed that all stages of production — manufacturing, wholesale and retail — suffered a record drop in sales in October, the month the financial crisis hit with force.
Businesses trimmed their total inventories by the biggest amount in five years, which probably means more cuts in production and layoffs in the months ahead.
And a Labor Department report showed wholesale prices dropped 2.2 percent in November, the fourth consecutive monthly decline. They had fallen 2.8 percent in October, a record.