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Decline in U.S. Retail Sales Due to Coronavirus

May 19, 2020 By Mircea Vasiu

The Retail Sales data in the United States fell by 16.4% in April, following an 8.3% decline in March. Clothing and accessories stores declined to almost 90%, with only nonstore retailers and food and beverage stores posting a positive number.

Using the United States as a benchmark for the developed world likely leads to similar findings. What is more interesting is that the coronavirus pandemic just amplifies a trend that started way earlier – the growing adoption of e-commerce.

E-Commerce Gaining More Traction

In times where social distancing is the norm, the rise of e-commerce should not surprise anyone. After all, people are encouraged to stay at home as much as possible, as economies shut down in a bid to fight the pandemic.

The recent Retail Sales data, while showing a natural increase in e-commerce, ignores the rising trend of online shopping that has taken place for years. Since 2004, the nonstore retailers’ share of the market rose 4.5 times, dwarfing the size of the store retailers.

Moreover, UBS predicts that the trend will continue throughout 202 and beyond. UBS is now predicting that over a hundred thousand stores will have to close over the next five years as more shopping shifts online. Office supplies are forecast to be hit the most, while auto parts to suffer less.

The cumulative decline in Retail Sales over the last two months is nothing short of dramatic, affecting all spending categories. As consumer spending is the backbone of economic growth, such a slowdown sends shivers to monetary policymakers.

The logic follows a vicious circle. If consumers do not spend (for whatever the reason), sales at the retailers decline. As such, inventory levels remain elevated. Next, retailers will not place orders to wholesalers. Which in turn, decrease in size their factory orders. As this happens, factories will have to lay people off and thus, the government has an extra cost in unemployment benefits.

Such a short version of the economic impact of weak retail sales is meant to show the difficult tasks governments and central planners face during an economic crisis. Sometimes the best decision is to choose from two evils.

It should come as no surprise, seeing the Retail Sales data, that the United States Congress approved sending a check to each household to sustain the economy. Also known as helicopter money, which was long viewed as a taboo for capitalism.

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