Retail Sales Plummet

Retail sales in April were down -16.4% compared the prior month and -21.6% compared to the same month a year ago. Economist had forecast of drop of just -12.5%. This April collapse follows a revised -8.3% drop in March making these back-to-back losses by far the worst decline in modern American history. As the accompanying graph shows retails sales are back to levels first reached more than 20 years ago.

Source: : St. Louis Federal Reserve: https://fred.stlouisfed.org. Advance Real Retail and Food Services Sales, Millions of 1982-84 CPI Adjusted Dollars, Monthly, Seasonally Adjusted

Every sector experienced falling sales except online which jumped +8.3%. Some of the biggest declines were in clothing stores down -79%, electronic stores off -60%, and furniture sales lower by -59%. Even grocery store sales fell in April by -13% following a jump in March due to stockpiling by consumers. A notable standout was home centers, such as Home Depot (HD) and Lowe’s (LOW), with sales declining just -3.5%.

Two big mall-based retailers, Neiman Marcus and J.C. Penney (JCP), entered bankruptcy this week. These are both companies that have been struggling and were unable to weather the current environment. It is expected that many retailers, certainly smaller companies, will face the same fate.

This Week’s Performance Highlights

Source: www.YCharts.com

Investor sentiment and prices reversed course falling in the most recent week while safe-haven investments such as gold and bonds moved higher. One of the negative influences in the market was Federal Reserve Chairman Powell’s comments in a speech suggesting there is continued risk to our economy and that will likely require additional support from the government. This concern is further reflected in the most recent survey by the Wall Street Journal of more than 60 economists forecasting the U.S. economy will shrink by -6.6% in 2020. A month ago the estimate was for only a -4.9% contraction.

Economic Indicators

The prices of goods and services fell in April as the economy contracted and demand weakened. The Consumer Price Index (CPI), the measure of retail inflation, declined -0.8% for the month with the biggest drop being in the price of gasoline down nearly -21%. In additional there were record drops in prices for clothes, auto insurance, hotel rooms, and plane tickets. The price of groceries were among the very few items increasing in price, up +2.6%, as demand has risen with more people eating at home. When stripping out the price changes for food and energy, known as the core CPI, prices were down a record -0.4% and the first time it has fallen for two consecutive months since the early ‘80s.

The Producer Price Index (PPI), a measure of wholesale inflation, fell by a record -1.3%, far worse than economists had predicted. Similar to the CPI, a steep drop in energy prices contributed to the overall decline. The price of services fell just -0.2%.

Industrial Production recorded a record fall of -11.2% in April reflecting the impact of factory closures and more.

Consumer Sentiment came in better than economists had forecast but certainly still off sharply from recent highs. In spite of the recent drop and unprecedented economic decline, consumers remain far more optimistic than they were during the lows of the 2008 Financial Crisis.

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