U.S. retail sales post biggest drop in a year;
coronavirus drag coming
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[March 18, 2020] By
WASHINGTON (Reuters) - U.S. retail sales
fell by the most in more than a year in February and the coronavirus
pandemic is expected to depress sales in the months ahead, which could
strengthen economists' expectations of a consumer-led recession by the
The report from the Commerce Department on Tuesday showing broad
weakness in sales came on the heels of the Federal Reserve's aggressive
step on Sunday to cut interest rates to near zero, pledge hundreds of
billions of dollars in asset purchases and backstop foreign authorities
with the offer of cheap dollar financing.
Fed Chair Jerome Powell said the epidemic was having a "profound" impact
on the economy.
The coronavirus outbreak has forced millions of Americans to hunker down
in their homes instead of commuting to work or school. State and local
governments have escalated "social distancing" policies, closing
schools, bars, restaurants and theaters in an attempt to contain the
"Disruptions from the coronavirus will bring the economy's main engine
to a halt," said Lydia Boussour, a senior U.S. economist at Oxford
Economics in New York. "As the virus keeps consumers at home and panic
spreads, discretionary spending and 'social consumption' will take a
Retail sales dropped 0.5% last month, the biggest decline since December
2018. Data for January was revised higher to show retail sales
accelerating 0.6% instead of rising 0.3% as previously reported.
Economists polled by Reuters had forecast retail sales climbing 0.2% in
Compared to February last year, retail sales increased 4.3%. Excluding
automobiles, gasoline, building materials and food services retail sales
were unchanged last month after increasing by an upwardly revised 0.4%
in January. These so-called core retail sales correspond most closely
with the consumer spending component of gross domestic product. They
were previously reported to have been unchanged in January.
The coronavirus, which causes an illness called COVID-19, has killed
more than 7,100 people and sickened about 182,260 across the world,
according to a Reuters tally. Health experts, however, say the
casualties are much higher given that testing is not readily available
in many countries, including the United States. The virus has crippled
the transportation, leisure and hospitality industries, as well as the
A survey from the New York Fed on Monday showed a record plunge in
factory activity in New York state in March to levels last seen in 2009.
The weakness in manufacturing was underscored by a separate report from
the Fed on Tuesday showing output at factories barely growing in
The sector, which accounts for about 11% of the economy, is also being
hamstrung by problems at Boeing <BA.N> related to its grounded 737 MAX
plane and an oil price war between Russia and Saudi Arabia, which has
weighed on crude prices and hurt American producers.
The U.S. Senate was on Tuesday considering a multibillion-dollar
emergency spending bill passed by the House of Representatives offering
economic relief from the virus as the Trump administration pressed for
$850 billion more.
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A sign states "SALE 50%" at the King of Prussia Mall, United States'
largest retail shopping space, in King of Prussia, Pennsylvania,
U.S., December 8, 2018. REUTERS/Mark Makela
The Fed on Tuesday revived a funding facility used during the 2008 financial
crisis to help American businesses manage their short-term liquidity. Treasury
Secretary Steven Mnuchin said $10 billion from the Treasury's Exchange
Stabilization Fund was being invested in the new commercial paper funding
Stocks on Wall Street rallied a day after they suffered their biggest drop since
the 1987 crash, cheered by hopes of fiscal stimulus and the Fed actions to boost
the commercial paper market. The dollar rallied against a basket of currencies,
while U.S. Treasury prices fell.
Goldman Sachs on Sunday cut its first-quarter gross domestic product forecast to
zero from a 0.7% annualized rate. The investment bank also expects GDP to
contract at a 5.0% rate in the second quarter. Economists expect the economy to
sink into recession by the second quarter. The economy grew 2.3% in 2019.
"The outlook for all of 2020 has darkened substantially, however, as it is
increasingly likely that a short and sharp recession will occur in the middle of
the year," said Ben Ayers, senior economist at Nationwide in Columbus, Ohio.
In February, auto sales decreased 0.9% after rising 0.8% in January. Receipts at
service stations tumbled 2.8%, reflecting cheaper gasoline. Sales at electronics
and appliance stores declined 1.4%.
Sales at building material stores plunged 1.3%, after being boosted in recent
months by unseasonably mild temperatures.
Receipts at clothing stores fell 1.2% last month. Online and mail-order retail
sales rose 0.7%. That followed a 0.2% gain in January. Receipts at furniture
stores slipped 0.4%.
Grocery and healthcare stores sales fell marginally. There was panic buying in
late February, which saw shelves at supermarkets, pharmacies and other
establishments cleaned out of household essentials, including food and toilet
Sales at restaurants and bars dropped 0.5%, and economists expect sharp declines
in the months ahead. The Centers for Disease Control and Prevention recommended
cancellation of gatherings of 50 or more over the next eight weeks in an effort
to control the rapidly spreading disease.
Some state and local governments such as California and Washington DC have
closed restaurants and bars. The virus has shut down sporting events and
In February, spending at sporting goods, hobby, musical instrument and book
stores edged up 0.1%.
"Second-quarter growth could be sharply negative," said Joel Naroff, chief
economist at Naroff Economics in Holland, Pennsylvania. "We will not shake the
downturn until people can get back out to live their lives more normally."
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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