Consumer spending collapsed last month, according to a new report from the U.S. Census Bureau. Specifically, retail and food services sales totaled $483.1 billion in March, an 8.7 percent decline from February and the largest monthly drop ever. As weak as this headline figure appears, it is still too early to know the full effect of the coronavirus on Americans’ spending habits. For example, the disruptive efforts to contain COVID-19 did not really ramp up until the second half of the month, so a good portion of the March data reflects relatively normal consumer behavior. Further, some of the declines last month were offset (even if just fractionally) by surges in other retail areas. Grocery stores, for instance, reported their biggest sales jump on record (+26.9 percent), although a similar gain in April may be hard to achieve because much of the early hoarding behavior has subsided. Non-store retailers (Amazon) also reported a spike in sales in March, with it becoming clear that the crisis is likely to only accelerate the shift in consumer preferences from brick-and-mortars to online merchants.
Going forward, incoming retail sales data, as with basically every other piece of economic news, should continue to appear abysmal. This was an expected side effect of the nationwide lockdown and therefore may help explain why stocks have so far appeared little fazed by the recent influx of terrible economic reports. More importantly, trying to extrapolate anything about the future with confidence from this month’s data releases (and likely May’s as well) should be avoided because there are no historical periods to compare our current situation to where the government deliberately stopped the economy in order to stem the spread of a virus. This means that the data to really pay attention to will be what comes out after officials start gradually re-opening the economy. Even as the shelter-in-place orders are lifted, many of the initial reports will likely remain noisy given the severity of the disruptions while in lockdown, but the consumer sector should again be an early indicator worth closely monitoring. Indeed, there is a lot of pent-up demand, literally, that will cause retail sales and other consumption metrics to rebound sharply once the economy re-opens. The key, though, is how broad the bounce back in spending is.
This can provide clues about potential lingering effects of the coronavirus, e.g. are Americans reluctant to return to movie theaters, bars, and other people-dense areas after restrictions are lifted. Another consumer data point that will be useful as the economic machine starts back up is sentiment. Related surveys can help gauge how confident Americas are in the COVID-19 containment (or how concerned they are about a second wave), as well as whether consumers have materially changed their spending plans or boosted their savings rates relative to pre-coronavirus levels. The government’s recent “whatever it takes” fiscal and monetary policy initiatives should help Americans more smoothly transition back to some level of normalcy, but this of course assumes the lockdowns are removed in the not-too-distant future, even if only in a staggered manner consisting of partial re-openings varying regionally. Extended or rolling shelter-in-place orders, on the other hand, would more severely and perhaps permanently damage consumer optimism, and in turn require significantly greater government accommodation.
Sources: Econoday, U.S. DoC, FRBSL