Economic Preview: April is likely to be the cruelest month for retailers as sales slump and prices tumble
Spring has sprung but April may turn out be the cruelest month for retailers in an epoch of COVID-19.
Last week, the government reported the biggest loss of jobs in U.S. history and the highest unemployment rate in modern times. This week is likely to yield a record decline in retail sales and plunging prices in consumer goods and services, due to a slump in demand caused by the coronavirus outbreak.
T.S. Eliot’s acclaimed poem, The Waste Land, opened with the lines “April is the cruelest month.” The 1922 poem was written just four years after the Spanish Flu, the last pandemic. Waste Land’s opening line contrasts the vitality of spring against the backdrop of inner isolation and serves as an apt description of the current state of the economy two months after a deadly than crisis took hold in America.
“More April data this week means more misery expressed numerically,” said chief economist Joshua Shapiro of MFR Inc.
With tens of millions out of work and countless businesses closed, many of the companies still operating have had to cut prices to attract buyers. Cautious consumers are exercising great caution in how much they spend and what they buy.
The latest snapshot of consumer prices in April is likely to show declines in clothing, airfare, hotels, new and used autos, but the biggest impact will come from fuel.
Gasoline prices fell as much as 20% at stations throughout the country instead of rising as they normally do in the runup to the busy summer driving season. Stay-at-home orders and millions of people working remotely led to a big drop in demand.
One of the few basket of goods that might have posted an increase is food: Prices for some meats and other products have increased as customers hoarded supplies or producer struggled to keep their plants open.
Setting gas and food aside, so-called core consumer prices might have fallen for the second month in a row for the first time since 1982.
In short, the U.S. faces a greater short-term threat from deflation than inflation despite the federal government taking on $3 trillion in additional debt to support the economy during the crisis.
With double-digit unemployment … it will be hard to sustain any price increases,” economists Aneta Markowska and Thomas Simons of Jefferies LLC wrote in a note.
Sales at U.S. retailers are forecast to sink a record 12.3%, according to economists polled by MarketWatch. The government began keeping records in 1967.
Tumbling gas prices and the weakest auto purchases in 50 years will weigh the heaviest on retail sales.
Yet the toll taken on most retailers will be heavy aside from grocery stores, a few large Internet retailers like Amazon.com Inc.
and club stores such as Costco Wholesale
The select number of retailers, excluding grocery stories, that have remained open have had to resort to heavy discounting amid a plunge in foot traffic.
If there’s any potential good news, May is likely to be a little better than April. Many states are trying to restart parts of their economies and demand could start to gradually pick up gradually.
For an increasing number of retailers, however, it could be too little too late.
Already, Neiman Marcus and J. Crew have filed for bankruptcy and other stories names such as Lord & Taylor and JCPenney
are on the ropes. The industry is sure to undergo vast changes once the lockdown ends, especially if social-distancing practice linger in the U.S. and consumers remain hesitant to gather in large crowds.