Two more reports out today show how deep is the impact of the pandemic-induced shutdown of economic activity.
U.S. retail sales tumbled by a record 16.4% from March to April as business shutdowns caused by the coronavirus kept shoppers away, threatened stores across the country and weighed down a sinking economy.
The Commerce Department’s report Friday on retail purchases showed a sector that has collapsed so quickly that sales over the past 12 months are down a crippling 21.6%.
Few can weather a storm of that magnitude. And the impact on the larger economy is hard to exaggerate.
An April analysis by a group of academic economists found that a one-month closure could wipe out 31% of non-grocer retailers. A four-month closure could force 65% to close.
The plunge in retail spending is a key reason why the U.S. economy is contracting. Purchases at retailers are a major component of overall consumer spending, which fuels about 70% of economic growth.
Total industrial production fell 11.2 percent in April for its largest monthly drop in the 101-year history of the index, as the COVID-19 (coronavirus disease 2019) pandemic led many factories to slow or suspend operations throughout the month. Manufacturing output dropped 13.7 percent, its largest decline on record, as all major industries posted decreases. The output of motor vehicles and parts fell more than 70 percent; production elsewhere in manufacturing dropped 10.3 percent. The indexes for utilities and mining decreased 0.9 percent and 6.1 percent, respectively. At 92.6 percent of its 2012 average, the level of total industrial production was 15.0 percent lower in April than it was a year earlier. Capacity utilization for the industrial sector decreased 8.3 percentage points to 64.9 percent in April, a rate that is 14.9 percentage points below its long-run (1972–2019) average and 1.8 percentage points below its all-time (since 1967) low set in 2009.
In related news, the Wall Street Journal today reports on the disproportionate impact of the lockdown on lower-income workers.
The economic shock stemming from the coronavirus pandemic hit lower-income households first and immediately left them much worse off, according to a new survey from the Federal Reserve.
Almost 40% of households earning less than $40,000 a year experienced at least one job loss in March, versus 19% of households earning between $40,000 and $100,000 and 13% of those earning more than $100,000, the Fed said.
And while 85% of those with no work disruption said they could pay the current month’s bills in full, just 64% of those who had lost a job or had their hours cut said they could cover their expenses for the month, the Fed said in the report released Thursday.
The survey reveals a rapidly widening gap between those households that experienced the early economic effects of the pandemic and those that were spared. Those who lost jobs almost immediately found themselves in economic distress while those who didn’t said their personal financial outlook remained strong.
The longer this goes on, the more difficult will be the recovery, particularly for those least able to handle the downturn.