Reports offer signs of U.S.’ economic hit

Retail sales plunge 8.7%; industrial output tumbles

WASHINGTON — Evidence of the coronavirus’s effect on the U.S. economy has been steadily emerging, and the signs have grown ominous.

Sales at stores and restaurants plunged in March by the largest amount on records dating to 1992. The nation’s industrial output fell by the largest amount since the end of World War II. And the pandemic keeps ravaging the global oil market. That was just Wednesday’s news.

“I’ve never seen anything like this,” said Jennifer Lee, senior economist at BMO Capital Markets. “You don’t want to look, but you know you have to.”

The picture likely will worsen in the coming weeks and months. Business shutdowns likely will be in effect for the entire month, compared with just half of March, which would further affect retail sales — a primary driver of the U.S. economy.

Sales of homes and cars also are declining. And economists have forecast that today’s weekly report on applications for unemployment benefits will show that millions of Americans sought jobless aid last week, on top of the record-high number of nearly 17 million who filed

in the previous three weeks.

Economists now project a record-shattering 40% annualized decline in U.S. economic output for the AprilJune quarter. While growth is expected to rebound in the second half of the year, economists at JPMorgan Chase have forecast that the U.S. economy will still shrink 7% for 2020 as a whole.

The slowdown is a global concern. The International Monetary Fund on Tuesday predicted that the world economy would shrink 3% this year, the worst outcome since the Great Depression.

That is hammering oil prices, threatening the solvency of many oil drillers and putting many of their employees out of work.

Global demand for oil is forecast to fall this year by the most on record because of the economic lockdowns around the world, the International Energy Agency said Wednesday. Demand is projected to drop by an estimated 9 million barrels a day, which is equivalent to a decade’s worth of growth.

In the U.S., consumer spending drives more than two-thirds of the economy and was one of the main pillars of support before the virus. Business investment in new plants and equipment had already pulled back in the face of a U.S.-China trade war and falling oil prices.

On Wednesday, the government said U.S. retail sales plummeted 8.7% in March, an unprecedented decline, as the outbreak brought most commerce to a halt. Auto sales have dropped 25.6%, and clothing store sales have collapsed, sliding 50.5%. Restaurants and bars reported a nearly 27% drop in revenue.

Spending may be falling at an even faster pace than the retail sales figures suggest. Wednesday’s report did not include spending on services such as hotel stays, airline tickets or movie theaters.

And most states didn’t shut down nonessential businesses until late March or early April, meaning data for the current month could be worse still.

“It was a pretty catastrophic drop-off in that back half of the month,” said Sucharita Kodali, a retail analyst at Forrester Research. She said April “may be one of the worst months ever.”

Also Wednesday, the U.S. reported that industrial production, which includes manufacturing, mines and utilities, posted the biggest drop in March since 1946.

Manufacturing output dropped 6.3% last month, led by plunging production at auto factories that have shut down. Output dropped 3.9% at utilities and 2% at mines as oil and gas drilling fell.

And builder confidence in the market for new single-family homes has fallen off a cliff, according to an index released Wednesday by the National Association of Home Builders and Wells Fargo. Their monthly housing market index plunged 42 points in April to a reading of 30, the largest single monthly change in the history of the index.

RETAIL’S REACH

Retail sales represent about one-third of consumer spending, with the rest consisting of services. But the damage to the sector has broader ramifications for the economy.

The sector itself accounts for more than 1 in 10 U.S. jobs; only health care employs more. Its stores generate billions of dollars in rent for commercial landlords, ad sales for media outlets and sales-tax receipts for state and local governments.

Furthermore, the retail industry supports 1 out of 4 jobs in the U.S., according to some estimates. That includes millions of people such as delivery workers, tailors, vendors who supply hangers to store fixtures, and construction workers who renovate or build new stores.

“A lot of the economy is driven by the consumer,” said Neil Saunders, managing director of GlobalData Retail, a research firm. “The consumer is the linchpin. If the consumer takes a tumble, the rest of

the economy falls down.”

Stockpiling of essentials is starting to wane, Saunders said, which will also lower retail sales in April. And more grocery stores are limiting the number of shoppers in their locations.

The pullback in spending intensifies the problems facing storefront retailers, which were already struggling with online competition.

With a nationwide shutdown of malls and most stores, the pandemic is putting many clothing retailers in peril while increasing the dominance of big-box stores that have remained open because they sell essentials such as food and household goods.

More than 250,000 stores — including Macy’s, Nordstrom and Nike, which sell nonessential merchandise — have been closed since midMarch. That’s 60% of overall U.S. retail square footage, Saunders said.

Major retailers including J.C. Penney, Macy’s, Nordstrom and Best Buy have furloughed hundreds of thousands of workers, while Walmart and Amazon are on hiring sprees to try to meet the surging demand of shoppers buying online or using delivery or curbside drop-off services.

Department stores and mall-based chains have cut executive pay and suspended cash dividends and stock buybacks or repurchases to preserve cash. They’re also drawing down their credit lines to make sure they have a bigger pile of cash on hand.

“When you shut an economy down, you’re basically turning the lights off. So aside from grocery stores and whatever they can get online, there’s really not much going on out there,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. “At some stage when the economy starts to reopen, you’re going to get a bounce, but the bounce is not going to come anywhere close to replacing what was lost for a long, long time.”

The deterioration of sales has far outpaced the previous record decline of 3.9% that took place during the depths of the recession in November 2008.

“It was a very severe contraction, but the gears of the economy were still working,” said Jack Kleinhenz, chief economist for the National Retail Federation.

If retailers survive and can quickly reopen and rehire workers, the eventual economic recovery could be relatively swift. But the failure of a large share of businesses would lead to prolonged unemployment and a much slower rebound.

Economic policymakers in Washington have been trying to avoid that kind of cascade of business failures. The $2 trillion emergency package passed by Congress and programs announced by the Federal Reserve include government-backed loans and grants to keep businesses afloat.

Those initiatives have gotten off to a rocky start, however, with many businesses reporting difficulty applying for loans.

“They need lifeboats, and the lifeboats aren’t getting out there fast enough,” said Diane Swonk, chief economist at Grant Thornton. “This is a time when speed matters more than bureaucracy.” Information for this article was contributed by Christopher Rugaber and Anne D’Innocenzio of The Associated Press; by Sapna Maheshwari and Ben Casselman of The New York Times; and by Katia Dmitrieva and Reade Pickert of Bloomberg News.