March’s record-breaking collapse in retail sales, explained

Retail sales fell 8.7 percent in March, the largest-ever decline on record, according to Census Bureau data released Wednesday morning. In dollar terms, the decline was nearly triple the previous worst month on record, from the fall of 2008.

This joins the past several weeks worth of surging unemployment claims to clarify that the economy really is collapsing at an unprecedented pace. Indeed, given that most of the country wasn’t really reacting strongly to coronavirus in the first week or two of March, the real pace of decline is likely even worse than this number suggests.

But the basic story is clear — people bought way less stuff in March than they normally do.

One important thing to keep in mind is that the broad trend masks significant variation from sector to sector.

Grocery stores, for example, saw a 26.9 percent surge in sales as people shifted from restaurant meals to cooking at home, and tried to stock up to do fewer trips in April. Health and personal care stores also saw a more modest 4.3 percent rise. Bars and restaurants, which have been much discussed as an economic pain point, saw a gigantic 26.5 percent decline.

But to understand the state of the economy, it’s worth recognizing how much broader the consumer collapse was than just food service:

All of this is related to the coronavirus pandemic. But these declines are not identical to the pandemic-related closures.

Auto dealerships, for example, are still selling cars. But their sales fell by nearly as much as restaurants. It’s just not a very good time to buy a car. For starters, even though the dealerships aren’t necessarily shuttered, nobody wants to do a bunch of dealership visits and test drives under these conditions. And people who’ve just lost their jobs, or had their hours cut aren’t going to be in the market to buy a new vehicle. For that matter, people who haven’t lost income, but are just worried about the general situation are probably going to avoid making any large new purchases. And almost everyone is driving less, so there’s less need for a new car than before.

That said, even though these declines are clearly related to coronavirus, the sheer scope of the decline is a reminder that it’s simply not the case that there’s nothing people could buy under any circumstances — rather, under uncertain economic conditions, people are focusing their spending on essential goods and services. And, in a way, this reality is evidence in support of the idea that the way to stimulate the economy right now is through economic policy, rather than simply relaxing social distancing guidelines and hoping for the best.

Any reasonably prudent family is going to avoid buying a new car or a ton of new furniture and clothing under these circumstances. But by the same token, there are a lot of good discounts these days, and if you gave everyone a big enough stimulus check, they’d likely become interested in bargain hunting even if the mechanics of shopping aren’t ideal.

Conversely, simply declaring the economy “opened up” again doesn’t change the fact that people with falling incomes aren’t going to go make major purchases. The public health crisis is intimately linked to the economic one, but they’re not identical, and Congress and the Federal Reserve have many options to bolster the economy — like sending money to state governments and doing additional rounds of direct financial transfers to households — even as the country waits for an improved situation.