Over the past few days, economic releases have highlighted the damage caused by the coronavirus pandemic. On Friday, we learned that consumer spending dropped a record 16.4%. On Thursday, the Labor Department reported that 36.5 million workers have requested weekly unemployment compensation over the past eight weeks. The Federal Reserve reported that manufacturing fell by 18.7%, its largest monthly decline on record. Industrial production that in addition to factories includes mining and utility output, posted its steepest drop ever.
On the positive side, most economists feel that the reopening of most states and the possible passage of a new round of stimulus checks will provide some financial recovery. The White House released the following statement: “We are going to ensure that we take care of all Americans so that we emerge from this challenge healthy, stronger, and with economic prosperity.”
The decline in personal consumption expenditure is intertwined with the high jobless rate. Chris Rupkey, chief financial economist at MUFG Union Bank said: “There is deflation in the air and more downward pressure on prices is imminent with economic demand plummeting this quarter.”
Much of the decline in demand is attributable to a collapse of sales in clothing, electronics and appliances. The retail industry has been hurt both by the pandemic and the shift to online shopping. About 100,000 stores are expected to close over the next five years. UBS predicts that stores which provide office supplies, consumer electronics, sporting goods and home furnishing will be particularly hard hit.
Recently, luxury retailer Neiman Marcus Group, apparel seller J. Crew Group, and department store JC Penney have filed for bankruptcy.
In past decades, shopping centers and major malls featured one of more anchor stores. An anchor store was a widely popular store in a huge retail space responsible for driving much of the location’s foot traffic. Anchor stores included such stores as Sears, JC Penney, and Macy’s. To offset the decline of these traditional anchor tenants, shopping centers have added cinemas, restaurants, office space, auto dealerships, Apple Stores and entertainment centers such as gyms and ice skating rinks. To compete with online shopping, shopping centers need to provide customers with a fun, exciting, and enjoyable experience.
At some level most American states have reopened their retail stores, nail salons, and restaurants. Nevertheless, these efforts have not halted our massive layoffs.
Federal Reserve Chairman Jerome Powell on Wednesday delivered a blunt message that Congress and the White House need to spend more money to prevent deeper economic damage from the coronavirus pandemic.
Powell hopes that new stimulus efforts will focus their efforts on protecting workers, businesses and households from “avoidable insolvency.” Powell said: “It is heartbreaking … everyone is suffering here, but those who are least able to bear it are the ones who are losing their jobs and losing their incomes and have little cushion to protect them. For those workers in the service industries and the lower end of the pay scale, unemployment has been extremely burdensome. A Federal Reserve survey found that in households making less than $40,000 a year, nearly 40% of those lost their jobs by the beginning of April.
The central bank is preparing a second wave of lending programs in partnership with the Treasury Department to backstop more debt markets and get loans directly to companies and state and local governments.
Fed leaders have indicated that they see little chance of a swift economic rebound because they feel that consumer behavior has changed in ways that hold down spending. That is 68% of the nation’s $21.5 trillion economy derives from individuals’ buying decisions. Social distancing measures plus layoffs have discouraged personal spending.
The Fed chairman summed up our problems in response to a reporter’s question: “How bad is the coronavirus economy? The worst ever!”
