Yesterday, the U.S. Census Bureau released the advance retail sales figures. They are terrible. Retail and Food services, seasonally adjusted, went down in total by 8.7% in March, compared to February.
You can also watch my video “Advance Retail Sales, Industrial Production, and Jobless Claims [Covid-19 Impact]” on my YouTube’s channel. Check it out!
This 8.7% decline month-over-month is worse than the largest decline during the 2008 financial crisis, which was -3.9% in November 2008. It is the worst decline since the inception of this economic indicator in 1992.
The economic activity froze not only in the retail sector, but industrial production also fell by 5.4% month-over-month.
And today, the weekly initial jobless claims soar by 5.25 million. U.S. companies laid off more than 20 million employees over the last four weeks. Sadly, this unemployment trend will continue.
A closer look
Let’s have a closer look at what all those figures represent. The retail sales figures show us consumer spending in stores, online, restaurants, gasoline stations, in one word everywhere. It is clear from those figures that consumer spending froze in March. And if this figure of 8.7% drop is chilling, depending on the business type, it may be way worst.
For example, restaurants and bars lost 26.5% of their business activities in March. Department stores have seen their sales decline by 19.7%, and gasoline stations lost 17.2% in sales. The most dramatic figure is for clothing and clothing accessory stores. They lost more than 50% of their business activity.
It is highly probable that this economic freeze will continue in the short-term.
Reopening the economy?
Yesterday, the White House had call-meetings with businesses and political leaders on the subject of reopening the economy. The leading issue executives raised was the inadequate level of testing and the general lack of availability of tests.
I do not see any business asking its employees to come back to work, take public transportation, and potentially exposing them to a deadly virus if their employees can safely work from home. Nor stores wanting to have their full staff if they do not have customers.
If consumers decide not to buy cars, not go to restaurants or movie theaters, because of perceived risks for their health, or their loved one’s health, nobody can force them to do so.
Even if extensive testing is necessary to reopen the economy, it is not sufficient. Either new cases of coronavirus have gone way down, like in South Korea, or an effective vaccine is available. Without any of these two options, I do not think a reopening of the economy is achievable. Because in the end, this decision lies in the hands of the population, you and me, and businesses.
An erosion of the economy
Moreover, those retail sales figures indicate something else. Since companies make less money, a lot of them have losses and will not be able to fulfill all their financial obligations. Today, businesses struggle to pay their rent, which in turn will have an impact on commercial real estate.
Everything is connected, and this tearing down of the normal flow of money is having an immediate impact on a lot of sectors. And the response to the COVID-19 pandemic is also eroding other parts of the economy. All the effects may not be visible yet.
Don’t take me wrong; I talk a lot about the economy on this channel, but I do believe that the current response to the coronavirus is the only correct one. The most important thing now is to stop the spread of the virus and keep people alive.
Is the stock market too complacent?
Consequently, the economy will not recover quickly. And do not be fooled by markets going up from their lowest point in March. The stock market looks now dangerously unconcerned about the future, and a second wave of the S&P 500 diving sharply is still conceivable. You should be particularly prudent with your investments.
I am working on a video explaining how to limit the risks of losing money in the stock market. I will show you a strategy used by professional investment managers, and I managed $400 million that way. So you do not want to miss it. Subscribe to my YouTube’s channel and then click on the bell to be notified when I release it.
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Question of the day:
What do you think about the retail sales figures and the economy?
Sources: Industrial Production Index, Initial Claims, Retail Sales (Retail and Food Services – Total)