Retail sales at three-year low, spark opening slide in small caps

Small-cap stocks took a dive on the opening, tugged down by worries about the economy, dreadful retail sales results and ongoing concerns about clogged credit markets. At 9:53 a.m. ET, the Russell 2000 (NYSE:IWM) was down 16.49, or 2.93% at 538.39.

The stock market was already limping toward a lower opening, but the 8:30 a.m. ET release of retail sales sparked an extension of pre-market losses on futures and put a decidedly sour tone on the morning’s action. September retail sales came in at minus 1.2%, which was well below the forecast for a slide of 0.6%. This marked the largest one-month decline since August 2005, and more importantly, retail sales fell for three consecutive months, something which has not happened in more than 17 years. With two-thirds of the U.S. economy driven by spending, the slide in retail sales is an ominous sign that consumers are strapped for cash, especially with the unemployment rate on the rise.

At the same time that retail sales data came out, the market also got numbers on wholesale inflation via the PPI report. The headline figure for PPI met the forecast at minus 0.4% and clearly was upstaged by the sobering retail sales data. If you’re into obscure overseas data, the Baltic Exchange’s dry sea freight index tumbled to a 5 ½-year low overnight spurred by worries about a global recession and a deep pullback in demand for raw materials from China.

Back on the home front, factory activity in New York slumped in October, with the NY Manufacturing Survey down 24.6% to the lowest reading in some seven years, adding to the bleak tone from the retail sales figure. Earlier this morning ahead of the opening, the MBA Mortgage Application Survey rose 5.1% as mortgage rates dipped, but the purchase activity was still hovering near seven-year lows. With the consumer pinched right now by employment worries and fretting about the collapse in the stock market, it’s unlikely that the housing market is ready to explode out of . . .

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