U.S. retail sales fell at a record pace in March, with many retail categories seeing jaw-dropping declines. And economists are scrambling to find the right words to illustrate the rapid deterioration of the U.S. economy, as the world attempts to deal with the deadly coronavirus pandemic.
“The economy is literally in free fall with consumers unable to get out to the shops and malls in March, and about the only retailers smiling are grocery stores with consumers stockpiling food for the coming economic apocalypse,” MUFG Chief Financial Economist Chris Rupkey said in an email Wednesday. “This report today breaks all modern-day records for the consumer who has dealt the economy a body blow from which it will be difficult to recover.”
JPMorgan economist Michael Feroli writing in a note Wednesday, “all the toilet paper in the world can’t clean up this [retail sales] report.”
Headline retail sales plunged a record 8.7% during March, which was worse than the 8% decline expected by economists. Core retail sales, excluding the volatile auto and gas components, fell 3.1%, better than the 5.2% estimated decline. Retail sales dipped 0.4% and core retail sales sank 0.2% in February.
With most consumers quarantined in their homes, spending has nearly come to a standstill aside from essential purchases such as toilet paper and groceries. Personal consumption represents 70% of gross domestic product (GDP), and while March’s figures were bleak, there’s more pain ahead according to economists.
“The economy has lost its most reliable engine for growth: the consumer,” Rupkey said. “A 30% GDP decline this quarter is nearly certain now as the consumer has pulled the rug out from under the economy.”
Meanwhile, Feroli estimates a 10% annualized GDP decline in the first-quarter. “If realized, this would be the worst quarter ever in data going back to 1947. We continue to expect a much worse outturn of -40.0% in Q2,” he noted.
Capital Economics economist Michael Pearce also predicts a massive plunge in GDP growth during the second quarter. “Clearly there is huge uncertainty as to how deep the downturn proves and how long restrictions remain in place, but for now we remain comfortable with our forecast for GDP growth of -40% annualized in the second quarter,” he wrote in a note Wednesday.
March retail sales wasn’t the only economic release Wednesday that broke records. U.S. manufacturing and industrial production fell 6.3% in March, its biggest decline since February 1946, due to supply constraints in Asia and weaker demand amid the COVID-19 outbreak.
In addition, the New York Fed manufacturing index plummeted a record 56.7 points to -78.2 in April. A reading below zero indicates contractionary territory. Homebuilder sentiment also fell by the most on record in April. The National Association of Home Builders monthly Housing Market Index dropped to 30 in April from 72 in March, to its lowest level since June 2012.
