Record Pullback in March Retail Sales

Retail sales plummeted 8.7% in March, the largest single monthly decline in history. The data date back to 1967. Retail sales excluding vehicles fell less but were still down a record breaking 4.5% for the month. Statewide shelter-in-place and stay-at-home warnings started on March 19. California was the first state to shut down. Several large states soon followed. Close to 97% of the country was under some form of a stay-at-home rule by early April, although some states relaxed standards for the Easter holiday. We have to hope that those allowances do not trigger another surge in infections over the next two weeks.

Losses in retail sales for the month were broad-based with the exception of three categories: grocery stores, pharmacies and big-box discounters. Michigan later asked big-box discounters to restrict nonessential purchases to limit traffic and risk of contagion in stores. Online spending increased but gains were muted relative to a year ago. Most states allowed landscapers and construction workers to keep working, which buoyed spending at building and garden stores. The largest gains were recorded at grocery stores as consumers scrambled to stock up on food and hoard toilet paper and hand sanitizer.

Consumers pulled back on discretionary spending on clothing (-50.5%), which was already suffering from a mild winter, and big-ticket items such as motor vehicles (-25.6%). Spending on furniture and appliances (-26.8%) also plummeted. Restaurants and bars took it on the chin, with a drop of 26.5% as many were forced to close or shift to only delivery and pick up after revelers insisted on St. Patrick’s Day and Mardi Gras celebrations. Gasoline station sales dropped 17.2% in response to both a drop in prices and a sharp decline in driving. Consumers who are sheltering in place don’t commute to work and can’t reap all of the benefits of lower prices at the gas pump.

Core retail sales, which go into the calculation of consumer spending for the quarter, held up better than overall retail sales; they edged up 1.7% largely due to hoarding; those sales have already fallen in April. People are now reporting that they need their stimulus checks just to buy groceries.

Mortgage applications to purchase a new home stopped rising in mid-March; they fell 35% from a year ago last week. That weakness coupled with a likely surge in contract cancellations will take a further toll on repairs and remodeling as we move into Summer. Home buying tends to be one of the largest triggers to additional spending and is once again on the decline.

Separately, the New York Empire State index of manufacturing activity dropped to 78.2 in early April, its lowest level on record and more than double the lows hit during the worst of the Great Recession. Losses showed up in everything from orders to delivery times and prices. Deflation is a concern given the speed and breadth of the losses we are seeing. The only silver lining is that most expect conditions to improve somewhat in six months.

Bottom Line
Retail sales data for March were ugly. The losses are a prelude of what to expect for April when much more of the nation was forced to shut down and shelter in place. Data on services will not come out until after the initial estimate for first quarter GDP growth comes out later this month. It could be even worse because services include health and travel. Everything from dental offices to physicians’ offices were forced to shut down and/or move to online appointments. Elective surgeries, which subsidize the profits of hospitals, have been postponed.

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