National Post (National Edition)
U.S. retail sales down even before virus hit
FEBRUARY DATA
WASHINGTON • U.S. retail sales fell by the most in more than a year in February and the coronavirus pandemic is expected to depress sales in the months ahead, which could strengthen economists’ expectations of a consumer-led recession by the second quarter.
The report from the Commerce Department on Tuesday showing broad weakness in sales came on the heels of the Federal Reserve’s aggressive step on Sunday to cut interest rates to near zero, pledge hundreds of billions of dollars in asset purchases and backstop foreign authorities with the offer of cheap dollar financing.
Fed chair Jerome Powell said the epidemic was having a “profound” impact on the economy.
The coronavirus outbreak has forced millions of Americans to hunker down in their homes instead of commuting to work or school. State and local governments have escalated “social distancing” policies, closing schools, bars, restaurants and theatres in an attempt to contain the virus.
“Disruptions from the coronavirus will bring the economy’s main engine to a halt,” said Lydia Boussour, a senior U.S. economist at Oxford Economics in New York. “As the virus keeps consumers at home and panic spreads, discretionary spending and ‘social consumption’ will take a significant hit.”
Retail sales dropped 0.5 per cent last month, the biggest decline since December 2018. Data for January were revised higher to show retail sales accelerating 0.6 per cent instead of rising 0.3 per cent as previously reported. Economists polled by Reuters had forecast retail sales climbing 0.2 per cent in February.
Compared to February last year, retail sales increased 4.3 per cent. Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged last month after increasing by an upwardly revised 0.4 per cent in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have been unchanged in January.
The coronavirus, which causes an illness called COVID-19, has killed more than 7,100 people and sickened about 182,260 across the world, according to a Reuters tally. Health experts, however, say the casualties are much higher given that testing is not readily available in many countries, including the United States. The virus has crippled the transportation, leisure and hospitality industries, as well as the manufacturing sector.
A survey from the New York Fed on Monday showed a record plunge in factory activity in New York state in March to levels last seen in 2009. The weakness in manufacturing was underscored by a separate report from the Fed on Tuesday showing output at factories barely growing in February.
The sector, which accounts for about 11 per cent of the economy, is also being hamstrung by problems at Boeing Co. related to its grounded 737 Max plane and an oil price war between Russia and Saudi Arabia, which has weighed on crude prices and hurt American producers.
The U.S. Senate was on Tuesday considering a multibillion-dollar emergency spending bill passed by the House of Representatives offering economic relief from the virus as the Trump administration pressed for US$850-billion more.
The Fed on Tuesday revived a funding facility used during the 2008 financial crisis to help American businesses manage their shortterm liquidity. Treasury Secretary Steven Mnuchin said US$10 billion from the Treasury’s Exchange Stabilization Fund was being invested in the new commercial paper funding facility.
Goldman Sachs on Sunday cut its first-quarter gross domestic product forecast to zero from a 0.7-per-cent annualized rate. The investment bank also expects GDP to contract at a 5.0-per-cent rate in the second quarter. Economists expect the economy to sink into recession by the second quarter. The economy grew 2.3 per cent in 2019.
“The outlook for all of 2020 has darkened substantially, however, as it is increasingly likely that a short and sharp recession will occur in the middle of the year,” said Ben Ayers, senior economist at Nationwide in Columbus, Ohio.
“Second-quarter growth could be sharply negative,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pa. “We will not shake the downturn until people can get back out to live their lives more normally.”