In addition to a 3.5% slide in total sales to $19 billion in thequarter, the company registered negative comparable store sales of6.2%. "We are facing a tough environment as housing indicatorscontinue to deteriorate," Home Depot chairman Frank Blake said inthe conference call. He added, "We expect the soft market willcontinue."

Blake cited "the current overhang in the housing inventory andthe difficulties in the subprime mortgage industry" as majorfactors affecting the company's sales and earnings. He also pointedto survey figures that the company uses to estimate which way itthinks the market is heading. The survey the company uses is theratio of residential construction spending to GDP.

The 60-year average of construction spending to GDP is 4.8%, andat the height of the market in 2005 the ratio had climbed to 6.25%,Blake pointed out, but the market has now corrected to 4.5%. "Whenyou consider that GDP is approximately $14 trillion, thiscorrection represents a market contraction of more than $240billion," Blake said.