Sales at stores and restaurants plunged in March by the largest amount on records dating back to 1992. The nation’s industrial output fell by the largest amount since the end of World War II. And the outbreak keeps ravaging the global oil market.
That was just Wednesday’s news.
“I’ve never seen anything like this,” said Jennifer Lee, senior economist at BMO Capital Markets. “You don’t want to look, but you know you have to.”
The picture will likely worsen in the coming weeks and months. Retail sales — a primary driver of the U.S. economy — are almost surely suffering further during April because business shutdowns will have been in effect for the entire month, compared with just half of March.
Sales of homes and cars will also keep declining. And economists have forecast that Thursday’s weekly report on applications for unemployment benefits will show that millions of Americans sought jobless aid last week, on top of the record-high of nearly 17 million who filed in the previous three weeks.
Economists now project a record-shattering 40% annual decline in U.S. economic output for the April-June quarter. While growth is expected to rebound in the second half of the year, economists at JPMorgan Chase have forecast that the U.S. economy will still shrink 7% for 2020 as a whole.
The slowdown will be global. The International Monetary Fund on Tuesday predicted that the world economy would shrink 3% this year, the worst outcome since the Great Depression.
That is hammering oil prices, threatening the solvency of many oil drillers and putting many of their employees out of work. Global demand for oil will fall this year by the most ever due to economic lockdowns around the world, the International Energy Agency said Wednesday. Demand will drop an estimated 9.3 million barrels a day, which is equivalent to a decade’s worth of growth.
In the U.S., consumer spending drives more than two-thirds of the economy and was one of the main pillars of support before the virus. Business investment in new plants and equipment had already pulled back in the face of the U.S.-China trade war and falling oil prices.
On Wednesday, the government said U.S. retail sales plummeted 8.7% in March, an unprecedented decline, as the outbreak brought most commerce to a halt.
The deterioration of sales far outpaced the previous record decline of 3.9% that took place during the depths of the Great Recession in November 2008. Auto sales dropped 25.6%, while clothing store sales collapsed, sliding 50.5%. Restaurants and bars reported a nearly 27% fall in revenue.
Spending may be falling at an even faster pace than the retail sales figures suggest. Wednesday’s report did not include spending on services such as hotel stays, airline tickets or movie theaters.
Also Wednesday, the U.S. reported that industrial production, which includes manufacturing, mines and utilities, posted the biggest drop in March since 1946.
Manufacturing output dropped 6.3% last month, led by plunging production at auto factories that have shut down. Output dropped 3.9% at utilities and 2% at mines as oil and gas drilling plunged.
And builder confidence in the market for new single-family homes has fallen off a cliff, according to an index released Wednesday by the National Association of Home Builders and Wells Fargo. Their monthly housing market index plunged 42 points in April to a reading of 30, the largest single monthly change in the history of the index.
Retail sales represent about one-third of consumer spending, with the rest consisting of services. But the damage to the sector has broader ramifications for the economy.
The retail industry supports 1 out of 4 jobs in the U.S., according to some estimates. That includes millions of jobs like delivery workers, tailors, vendors who supply hangers to store fixtures, and construction workers charged with renovating or building new stores.
“A lot of the economy is driven by the consumer,” said Neil Saunders, managing dierctor of GlobalData Retail, a research firm. “The consumer is the linchpin. If the consumer takes a tumble, the rest of the economy falls down.”
Stockpiling of essentials is starting to wane, Saunders said, which will also lower retail sales in April, and more grocery stores are limiting the number of shoppers in their locations. Walmart, the nation’s largest retailer, is now allowing no more than five customers for each 1,000 square feet at a given time. That will reduce their stores’ capacity by about 80%.
The pullback in spending intensifies the problems facing brick-and-mortar retailers, which were already struggling with online competition.
With a nationwide shutdown of malls and most stores, the pandemic is putting many clothing retailers in peril, while increasing the dominance of big box stores that have remained open during the pandemic because they sell essentials like food and household goods.
More than 250,000 stores, including Macy’s, Nordstrom and Nike, which sell nonessential merchandise, have been shuttered since mid-March. That’s 60% of overall U.S. retail square footage, Saunders said.
Major retailers including J.C. Penney, Macy’s and Nordstrom have furloughed hundreds of thousands of workers, while Walmart and Amazon are on hiring sprees to try to meet the surging demand of shoppers buying online or for curbside drop-off or delivery.
Department stores and mall-based chains have cut executive pay and suspended cash dividends and stock buybacks or repurchases to preserve cash. They’re also drawing down their credit lines to make sure they have a bigger pile of cash on hand.
Nordstrom warned last week that it doesn’t know when it will be able to reopen its physical stores and that prolonged closures could cause it to become financially distressed. Ralph Lauren and Gap Inc. have announced that, for now, they’ve stopped ordering products for the fall. Other retailers will likely follow.