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5/18/20
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This report was written and provided to us by Wells Fargo Securities
By:
Tim Quinlan, Senior Economist
Wells Fargo Securities
Shannon Seery, Economic Analyst
Wells Fargo Securities
How Could it Get Worse?
March already posted a record decline in retail sales and that happened with lockdowns in place for only about half of the month. So with lockdowns throughout the entire month of April, most forecasters were braced for a steep decline in sales. Still, the 16.4% drop in retail sales was a gut-punch and a reminder of the gravity of this crisis and how the efforts to contain it are hollowing out key components of the commerce that drives our economy.
In terms of percentage declines, it was the worst month on record for everything except four categories: motor vehicles and restaurants (where the prior month was the worst), building materials (which may have gotten a boost from home and garden centers which generally remained open) and non-store retailers.
The Only Winner: Online Retail
The only retailer to report an increase in April was non-store sales. The lockdowns are accelerating the shift to online sales that was already in place for the past several years. This was a theme in our holiday sales piece in which we highlighted how 2019 would see online retailers take the largest share of holiday sales. In today’s report we learned that in April, online sales shot up 8.4% (the second largest sequential increase on record) to capture 19% of overall retail sales; compared to 12% on average the past two years.
Don’t Go to the Store Again, There’s No Room in the Freezer
Grocery stores and general merchandise stores which include warehouse clubs like Costco, went from best month on record in March to worst month on record in April…at least in percentage change terms.
These stores are not hurting though. The level of sales in April was still much higher than the any of the pre-crisis months leading up to March. In other words, consumers are still allocating a larger share of spending to groceries since they generally can’t go out to eat, but the panic buying at the outset of this nightmare appears to have settled down a bit.
Restaurants, however, are pulling out all the stops to figure out ways to survive in what is without exaggeration an existential crisis for them. In addition to conventional options like offering take-out and delivery, some states have relaxed restrictions on alcohol purchases. Other restaurants have shifted to provide meal kits or groceries. Restaurant sales have dropped 50% since February, and comprised only 8% of April sales, the lowest on record.
Downside to Q2 Consumption
We forecast personal consumption expenditures to drop at a 30% annualized rate in Q2. While this would already be a record decline, the worse-than-expected April retail sales report presents some downside risk to that call. But, with lockdowns starting to be lifted and many parts of the country beginning to re-open, April could very well be the bottom for many retailers, meaning sales should begin to recover in May.
Source: U.S. Department of Commerce and Wells Fargo Securities
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