An important component of the economy to monitor throughout the COVID-19 outbreak is the American consumer, which accounts for the majority of U.S. gross domestic product (GDP) growth. Heading into the epidemic consumption was robust, as evidenced by a new report out this morning from the Census Bureau which showed that the January gains in retail sales were revised sharply higher. The February figures, though, were a bit more mixed as headline sales unexpectedly fell and core sales, which strip out the volatile food and energy components, remained positive but rose by less than forecast. What is worse is that as with much of the data released so far in March this latest report is “stale” in that it describes the economy before the coronavirus disruptions really started to get underway. April will therefore be the month that the demand and supply shocks meaningfully begin showing up in the data (for March), and even then the reports could have conflicting signals because the containment efforts have varied regionally and did not truly ramp up until just the past few days.
For example, over the weekend several state governors ordered a mandatory shutdown of restaurants and bars, and the CDC similarly recommended no mass gatherings of 50 or more people. Such actions will obviously weigh heavily on the food-away-from-home (dining-out) component of the March retail sales report released next month. At the same time, though, sales at grocery stores have likely surged in March as people stock up on supplies to prepare for more social distancing and potentially even quarantines. Further, a lot of Americans may take advantage of rapidly falling gasoline prices and top off their vehicle’s tank as the “prepper” mentality becomes more popular given the high degree of uncertainty still surrounding the coronavirus. Altogether, near-term weakness in some retail sales categories could be offset by gains in other areas, meaning that a true sense of the economic damage of the coronavirus and related containment efforts may not be fully represented in the incoming data until May. This is why one possible interpretation of the stock market’s inability to hold onto gains recently is that it is basically investors trying to signal that they want policymakers to respond to the contagion with more aggressive monetary and fiscal easing now rather than waiting for a confirmation in the data that could take months to show up.
Sources: Econoday, U.S. DoC, FRBSL