INSTANT VIEW: October retail sales suffer record decline

NEW YORK (Reuters) - Sales at retailers suffered a record decline in October, government data on Friday showed, as shoppers took fright over falling home prices and a widening credit crunch pushing the economy toward recession.

Federal Reserve Chairman Ben Bernanke said on Friday financial markets are under severe stress and central bankers around the world are ready to do more to ease credit strains and support faltering economic growth.

KEY POINTS

RETAIL SALES: * Sales slumped 2.8 percent last month to a seasonally adjusted $363.7 billion, the largest decline since the series began in 1992, the Commerce Department said. * The reading compares with a revised 1.3 percent fall in September, previously reported as a 1.2 percent decrease. * Economists polled by Reuters forecast a 2.0 percent fall in October retail sales. * Sales excluding autos notched a record 2.2 percent drop versus a forecast for a 1.2 percent decline.

BERNANKE COMMENTS: * "The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain," Bernanke said in remarks prepared for delivery to a European Central Bank conference in Frankfurt. * "For this reason, policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant," he said. * Bernanke said steps that central banks have taken to ease liquidity strains and ensure short-term dollar funding around the world have led to improvements in credit market functioning, although he described those gains as "tentative." * "Financial markets remain under severe strain," he said.

COMMENTS:

NIGEL GAULT, CHIEF U.S. ECONOMIST, GLOBAL INSIGHT, LEXINGTON, MASSACHUSETTS:

"You might have hoped, say gasoline was way, way down in price, that might free up money to spend on other stuff. But that didn't happen, people still spent less on other stuff. So that's not good.

"Is it going to be deflation in the sense that we're going to see the consumer price index falling? Absolutely, I believe we are... up to a point that's good news.

"Where you get to worry about deflation is if falling prices spread so widely throughout the economy...

"We're obviously in recession, and we're in what looks like a severe recession. But as of yet, to say that we're in a deflation... We're clearly in a deflation for commodities, that's totally clear. For the rest of the economy we're in a disinflation, i.e., the inflation rate is going down. But it's too strong to say yet that we're in deflation."

KIM RUPERT, MANAGING DIRECTOR, GLOBAL FIXED INCOME ANALYSIS, ACTION ECONOMICS LLC, SAN FRANCISCO:

"Retail sales were weaker than forecast although that was surely the risk.

"They kind of fulfilled the worst expectations in the market so we really haven't seen much more reaction in Treasuries. It looks like equities are little changed."

"It is certainly showing major retrenchment by the consumer over the last couple of months and even more excessive in October. It looks like there was some impact from weaker commodity prices as well, impacting, say, gasoline.

"It is consistent with indications that we are in recession and that the consumer has pulled back considerably."

BERNANKE: "As one would expect Bernanke suggested that central banks are ready to take more steps if necessary. Their actions to date still have not fully resolved the strains in the market. Just from the headlines I've seen it just suggests they are still looking to act in a concerted fashion and then we will just see where we go from here."

STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO., NEW YORK:

"The data are weaker than expected, but again, we've been expecting weakness since stocks are down about 35 percent. They're down because of a credit freeze, and consumers have been frozen since stocks fell, on top of wobbly real estate and the economic environment. With stocks down so much, this isn't unexpected, and a lot has been discounted with recent news like Intel and Best Buy.

"Retail sales will recover after stocks recover. It's about consumer confidence, and confidence will return when stocks do, and that will happen when real estate recovers. I think we're in for six to nine months of economic numbers like these. It's the start of a trend; we're not likely to see a V-shaped recovery anytime soon."

ADAM YORK, ECONOMIC ANALYST, WACHOVIA SECURITIES, CHARLOTTE, NORTH CAROLINA:

"It was weaker than expected, but obviously very big weakness was expected coming into the October/November period when the U.S. economy really hit an air pocket. So there is not a lot of surprise, maybe a little bit of a surprise on the magnitude but not a lot of surprise that we had big declines. If you look at one of the core numbers that we look at, which is ex-gasoline, building materials and auto dealers, there you are only looking at a decline of a half a percent. It is better than the headline when you strip out the price effects of gas and the building materials. But still, a downward trend. We are expecting a very weak holiday season, there are a lot of headwinds facing the consumer heading into the important shopping season."

DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES, NEW YORK:

"Take our cars and gas, it's a drop of half a percent. It's not good, but it's not horrific. This could have been worse; it's encouraging that it wasn't. It is, however, the fourth consecutive decline in retail sales...

"There's no question that retailers have hit the wall here with consumer spending in sharp retreat, and I think we're going to see even weaker numbers in the months ahead.

"Now we have this war of wits between retail stores and consumers and that war has waged in recent years as we enter the holiday season."

DUSTIN REID, SENIOR CURRENCY STRATEGIST, RBS GLOBAL BANKING & MARKETS, CHICAGO:

"The retail sales data was definitely weaker than expected, both on the overall number and excluding autos. We've had weak numbers in September, weak numbers in October, and I don't see it getting better in November or December, which is expected to be a very weak retail sales period.

"I still think the negative correlation between equities and the dollar is the main trading theme. As for Bernanke's comments, I don't see a whole lot there that hasn't been said already. Central banks being ready to ease more is pretty obvious and markets have priced that in."

KEVIN FLANAGAN, FIXED INCOME STRATEGIST, GLOBAL WEALTH MANAGEMENT, MORGAN STANLEY, PURCHASE, NEW YORK:

"What you are seeing now is the turmoil in the credit and funding markets playing out into the consumer sector as well; also the deteriorating labor market conditions. Some of the decline was attributable to lower gasoline, but there is no doubt as to the weakness in consumer spending, which will probably weigh on the economy for the next six to nine months."

MARKET REACTION: STOCKS: U.S. equity index futures remain in negative territory after bigger-than-expected decline in October retail sales. BONDS: Treasury debt prices hold gains . DOLLAR: U.S. dollar extends losses versus yen. RATE FUTURES: U.S. rate futures trim losses but remain lower

ALSO REPORTED FRIDAY:

U.S. import prices fall sharply in October.