WASHINGTON -- U.S. retail sales plummeted 8.7% in March, an unprecedented decline, as the viral outbreak forced an almost complete lockdown of commerce nationwide.
The deterioration of sales far outpaced the previous record decline of 3.9% that took place during the depths of the Great Recession in November 2008.
Auto sales dropped 25.6%, while clothing store sales collapsed, sliding 50.5%, the Commerce Department said Wednesday. Restaurants and bars reported a nearly 27% fall in revenue.
U.S. consumer confidence has plunged and the vast majority of Americans are hunkered down at home under shelter-in-place orders. Consumer spending drives two-thirds of the U.S. economy, and the record drop in retail sales is a symptom of the sharp recession that most economists believe the U.S. has already entered. Economists at JPMorgan Chase now forecast the U.S. economy will shrink by a record-shattering 40% in the April-June quarter.
“With clear signs of panic buying of necessities and the fact that lock downs were introduced only around the middle of the month means that far worse is to come in April and the second quarter more generally,” said Michael Pearce, an economist at Capital Economics, a consulting firm.
Spending may be falling at an even faster pace than the retail sales figures suggest. Wednesday's report doesn't include spending on services such as hotel stays, airline tickets, or movie theaters, all of them suffering some of the most severe financial duress during the outbreak.
The toll of the devastation is being unearthed as the U.S. releases more data from different sectors of the economy. On Wednesday, the U.S. reported that industrial production, which includes manufacturing, mines and utilities, posted the biggest drop in March since 1946.
The pullback in spending is intensifying the problems facing brick and mortar 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 during the pandemic because they sell essentials like food and household goods.
More than 250,000 stores, including Macy’s, Nordstrom and Nike, which sell non-essential merchandise have been shuttered since mid-March. That’s 60% of overall U.S. retail square footage, according to Neil Saunders, managing director of GlobalRetail Research
Major retailers including J.C. Penney, Macy’s and Nordstrom 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 for curbside drop-off or delivery.
Department stores and mall-based chains have cut executive pay, 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.
Nordstrom warned last week that it doesn’t know when it will be able to reopen its physical stores and that prolonged closures could cause it to become financially distressed. Ralph Lauren and Gap Inc. have announced that, for now, they’ve stopped ordering products for the fall. Other retailers will likely follow.
Discretionary spending by shoppers is expected to collapse 40%-50% in the first-half 2020, according to Fitch Ratings. And department stores lead a group of consumer companies that have seen their odds of default spike over the past month, according to S&P Global Market Intelligence.