Retail sales, factory output slide
Recent data shows steeper dips as virus’s impact worsens
Retail sales and factory output in February show a fainter pulse for the U.S. economy even before growing supply-and-demand disruptions brought on by the rapidly spreading coronavirus.
Purchases at the nation’s retailers slid 0.5%, the most since the end of 2018, as sales declined in nine of 13 retail categories, Commerce Department figures showed Tuesday. Output at manufacturers barely rose as idled Boeing Co. 737 Max production continued to weigh on the industry, according to Federal Reserve data.
In more recent data, visits to U.S. stores fell sharply last week as shoppers stayed home because of the coronavirus outbreak.
Foot traffic to retailers decreased 31% in the week through Friday, according to location-data provider Prodco Analytics. This marks the sixth straight week that store visits have fallen, dating back to shortly after the first case of coronavirus was confirmed in the U.S. in January.
Retailers may see even steeper dips in the coming weeks as at least five cities and states order stores to close in order to stem the virus’s spread. In the past few days, many major retailers decided to temporarily shut their U.S. stores through late March, including Nike, Apple, Nordstrom, Ralph Lauren, Coach, Abercrombie & Fitch and J. Crew. Some malls have also moved to shut their doors for the time being.
February sales in the “control group” subset, which some analysts view as a more reliable gauge of underlying consumer demand, were little changed, compared with projections for a 0.4% gain, the Commerce data showed. The measure excludes food services, car dealers, buildingmaterials stores and gasoline stations.
The overall February decline came from weakness in a number of areas including a 0.9% fall in auto sales and a 2.8% drop at gasoline stations, a decline that reflected
falling gas prices.
One bright spot was a 0.7% increase in non-store retail sales, the biggest advance since August. Amazon.com Inc. stands to win big as the virus threatens traditional retail stores. The pandemic has led even more Americans to order household essentials online instead of going to crowded stores.
Conditions will almost certainly weaken further for U.S. producers, already beset by reduced corporate capital investment and slumping export markets. Production of business equipment dropped in February for a third straight month, the Fed’s industrial output report showed.
“With virus fears escalating drastically, containment measures being stepped up and high-frequency data showing that consumers are already avoiding public places like restaurants and cinemas nationwide, it looks likely that retail sales will fall sharply in March,” said Andrew Hunter, senior U.S. economist at Capital Economics.
While March figures will likely include Americans’ rush to grocery stores to stock up on food as government officials urge social distancing, an increasing number of retail establishment closings indicate a substantial cutback in consumption is well underway. Until recently, consumer spending has been the economy’s chief source of fuel.
Discounters and grocers like Walmart, Target and Costco have seen long lines of customers wanting to stockpile groceries across the country. But many mall-based clothing stores are empty as shoppers aren’t interested in leisure buying. Economists believe that the hit to consumer spending, which accounts for 70% of economic activity, will be enough to push the country into a recession.
While the Fed has slashed its benchmark interest rate to near zero and attempted to alleviate poor credit conditions, lawmakers have been slow to respond.
A separate report Tuesday showed home-builder sentiment declined to a fourmonth low as sales expectations dimmed despite the recent plunge in mortgage rates. The National Association of Home Builders/Wells Fargo Housing Market Index slipped to 72 from 74 in February. Some 21% of builders reported some supply disruption due to virus concerns in other countries such as China, Robert Dietz, the association’s chief economist, said in a statement.