Economy

4 ways this year’s holiday shopping may be affected by the pandemic, according to a retail economist

Posted on by katiecmorgan

Inc. Business Insider, August 1, 2020

  • As the holiday season slowly approaches, it’s difficult to say for sure how the COVID-19 pandemic will affect shopping.
  • Jack Kleinhenz, chief economist for trade group the National Retail Federation, estimates that four main trends will emerge in the retail industry this fall and winter.
  • He says some consumers may not have generous shopping budgets this year, as many are struggling with unemployment and other financial burdens.
  • Kleinhenz also says brick and mortar stores will likely need to hire more staff to accommodate curbside pickup and delivery requests, and may offer more products catered to the ‘stay-at-home’ lifestyle.
  • Visit Business Insider’s homepage for more stories.

While Black Friday is still months away, a few predictions are safe to make now. Chief among them: For many households, consumers will be spending for the holidays no matter what.

“There’s always room somehow to find [the budget] for either Christmas or Hanukkah or for the holidays. But it will be a challenging one,” said Jack Kleinhenz, chief economist for the National Retail Federation, a trade group.

Here are four other trends you can expect to see this coming holiday season, according to Kleinhenz.

1. In-and-out floor plans

Optimize your store layout for a quick in-and-out visit. Adapting to consumers’ changing shopping habits is more important than ever. When shoppers venture into stores, they’re on a mission.

Brick-and-mortar stores need to convince shoppers that it is healthy and safe to come in. Have staff readily available to quickly point customers in the right direction.

2. Extra shopping help

You may want to hire plenty of shopping assistants, those employees who run through the store to get items people want for curbside pickup or delivery. Staff up early since competition for this help could be stiff. The hiring surge could be so significant that it could affect temporary employment statistics in the fourth quarter, says Kleinhenz.

3. More for the homebody, less for parties

People will want to buy products that align with social distancing lifestyles, even continuing into November. Kleinhenz expects a big uptick in the home entertainment category, such as remote-learning tools like iPads and laptops, and in other gifts that reflect stay-in-place routines.

In contrast, food spending will be down if people can’t gather for big meals, Kleinhenz predicts. The fewer dollars going to big fancy meals or traveling may mean more going toward gifts, he says.

4. More returns

Prepare for more returns than usual. If customers do buy online, they’ll likely buy more than what they need since they can’t go into the store to try things on or see the product in real life, eventually returning a lot of those items. Plus, you likely have additional sanitization processes to think about. Be prepared to handle those returns in a timely way.

Don’t count the consumer out this holiday shopping season, Kleinhenz says. He still has faith in consumers, all things considered, and that they’ll want to spend money this year, even if their buying patterns look different than last year. It’s up to you to meet those consumers where they are.

Anna Meyer,

Inc 
Aug 1, 2020

More Temporary Coronavirus Business Closures Turning Permanent, Yelp Reports

Posted on by katiecmorgan

KEY POINTS

  • Only 24% of the businesses that were closed in April had reopened by July 10
  • Permanent closures now account for 55% of all closures
  • Of the 26,160 restaurants and bars that were closed in July, 15,770 plan to stay that way permanently

A Yelp analysis indicated Wednesday fewer businesses are closing temporarily as a result of the coronavirus pandemic, but permanent closures are growing. At the same time, data indicated the number of COVID-19 cases increased as consumer interest in restaurants, bars, nightlife and health clubs rose.

U.S. cases of coronavirus began surging as states lifted restrictions imposed in the early days of the coronavirus pandemic, especially in the South and West where instances initially were low in the spring and restrictions were lifted rapidly.

The U.S. has recorded nearly 3.9 million coronavirus infections and nearly 142,000 deaths from COVID-19. Nearly 58,000 new cases were reported Tuesday along with more than 470 deaths.

Yelp reported in April 175,000 businesses had closed because of pandemic lockdowns. As of July 10, that number fell to 132,000, indicating only 24% of those businesses had reopened. And although temporary closures are falling, permanent closures are growing, accounting for 55% of all closures since March 1.

Of the 26,160 closed restaurants and bars in July, 15,770 have closed permanently.

Among retail businesses, 29% of the 26,119 closures are permanent.

“How durable the improvement in retail spending will be is directly related to how widespread the resurgence in COVID-19 cases becomes,” NRF chief economist Jack Kleinhenz said in a press release. “All eyes are on the infections that are accelerating in many parts of the country and they pose a serious threat to recovery.”

Retail sales for June were up 7.5% compared to 18.2% in May, the Census Bureau reported. Restaurant and bar sales for June totaled $47.4 billion, $18 billion under prepandemic levels, the National Restaurant Association reported.

Yelp data indicated the 10 states with the largest increases in COVID-19 cases in June and significant increases in consumer interest in restaurants, bars and nightlife, and gyms were Florida, Idaho, Nevada, Oklahoma, South Carolina, Arizona, Texas, Georgia, Kansas and Alabama.

Massachusetts, Michigan, the District of Columbia, New York, Connecticut, Maryland, New Hampshire, Rhode Island, Virginia and Illinois not only had the largest decreases in COVID-19 cases but showed flat interest in restaurants, bars, nightlife and health clubs.

Yelp said there also has been a shift in consumer trends since May. Interest in alcohol-related activities is up while grocery interest is down. Formal wear and bridal shops also saw growing interest, as is axe throwing, escape games and boxing.

Additionally, there is growing consumer interest in urgent care and emergency rooms.

International Business Times

July retail market: US sales jump 7.5% in June; bankruptcies hit 3-year high

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U.S. retail sales rose more than expected for the second consecutive month in June as the economy reopened, but experts say recovery remains uncertain given the new spikes in COVID-19 cases.

Retail and food services sales jumped 7.5% during the month, surpassing the consensus estimate of economists polled by Econoday of a 5.2% rise.

“June’s numbers show that retail spending is fueling the economic recovery,” Jack Kleinhenz, chief economist at the National Retail Federation, or NRF, said in a statement. “How durable the improvement in retail spending will be is directly related to how widespread the resurgence in COVID-19 cases becomes.”

Meanwhile, nine retailers went bankrupt in late June through mid-July period, including vitamin seller GNC Holdings Inc. and retailer RTW Retailwinds Inc. The year-to-date bankruptcy count has already surpassed the number of filings in 2019 and 2018, according to an S&P Global Market Intelligence analysis.

Retail sales

U.S. retail and food services sales increased in June over the prior month to a seasonally adjusted $524.31 billion, according to a report released July 16 by the U.S. Census Bureau. This follows a revised 18.2% rise in May.

Several U.S. states, especially those in the Southeast and West, began reporting spikes in COVID-19 cases in June. The resurgence has prompted several states to either pause their reopening plans or shutter certain businesses.

The increase in retail sales in June “solidified the recovery that started in May and confirmed the strong — though uneven — snapback in demand,” Lydia Boussour, senior U.S. economist at Oxford Economics, said in a note. “Sadly, the alarming trajectory of the virus nationwide has put in question the sustainability of the recovery in consumption.”

NRF President and CEO Matthew Shay said the sales figures are encouraging and “reflect continued progress in the right direction.”

The jump in retail sales was driven by clothing and clothing accessories store sales, which rose 105.1% from May to $17.1 billion in June. Spending at electronics and appliance stores increased by 37.4% during the month to $7.05 billion.

Furniture and home furniture stores registered an increase of 32.5% in sales to $9.58 billion. Sales at gasoline stations rose 15.3% month on month to $33.63 billion, while spending on food services and drinking places jumped 20% to $47.43 billion.

“[W]hile today’s report gives the illusion of a fearless consumer spending lavishly, the reality is more sobering: consumers are increasingly fearful amid new spikes in COVID-19 cases and a looming fiscal cliff,” Oxford Economics’ Boussour said.

Meanwhile, nonstore sales, the category that includes e-commerce, decreased 2.4% to $82.80 billion in June. But on a year-on-year basis, online spending rose 23.5%.

“We do expect online sales to continue their extraordinary upward swing as consumers get comfortable adding more product categories on their online shopping list,” Moody’s Vice President Mickey Chadha said in a note.

Marwan Forzley, CEO of global payments firm Veem, said the “modest” monthly decline in online spending does not come as a surprise. “We are living in very volatile times with heightened uncertainty, which is bound to make some consumers cautious when it comes to spending money,” he told Market Intelligence via email.

Forzley added that the coronavirus crisis has changed the mindset of online spending. “Spending now starts online and is complemented offline as opposed to the pre-COVID mindset of starting the buying process offline first. I think that mindset shift will continue to fuel the relevance of e-commerce, online payments, supply chain payments and global payments at large,” he said.

The U.S. Labor Department separately said Thursday that unemployment claims in the U.S. declined to 1.30 million in the week ended July 11 from 1.31 million in the previous week.

Matthew Eidinger, fintech specialist at Cambridge Global Payments said in a note that the data on both consumer spending and the U.S. labor market should be “taken with a grain of salt,” as the rise in the coronavirus cases stands to threaten state reopening efforts across the entire Southern belt.

“Efforts to rollback economic reopenings could mean a loss of the momentum the economy has built up throughout May and June — prompting another wave of business closures and corresponding layoffs, which could threaten the recovery,” Eidinger said.

Consumer prices

The Consumer Price Index, or CPI, rose 0.6% in June from the previous month, data released July 14 by the U.S. Bureau of Labor Statistics showed.

Prices advanced 0.6% year on year.

The core CPI, which excludes food and energy prices, increased 0.2% in June, registering its first monthly rise since February. Food prices rose 0.6% month on month, while energy prices increased 5.1% during the month.

Prices for apparel increased by 1.7% in June versus the prior month. Prices for men’s and boys’ apparel rose by a seasonally adjusted 2.4%, while prices for women’s and girls’ apparel rose by 0.9%.

Bankruptcy

Nine Market Intelligence-covered U.S. retail companies went bankrupt in late June and early July, bringing total year-to-date bankruptcies to 38.

The year-to-date figure now outnumbers the total number of bankruptcies in 2019 and 2018. In 2019, 32 retailers went bankrupt, while 2018 saw 33 companies going bankrupt.

The analysis includes companies with a primary industry classification of retailing, household and personal products, or consumer durables and apparel, and a secondary classification of retailing. Public companies included in the list of companies with public debt must have at least $2 million in either assets or liabilities at the time of the bankruptcy filing. In comparison, private companies must include at least $10 million.

GNC Holdings filed a voluntary petition for reorganization under Chapter 11 on June 23. At the time of filing, GNC said it is pursuing a dual-path process that will allow the company to restructure its balance sheet via a stand-alone plan of reorganization or a sale of the company.

RTW Retailwinds, which owns apparel retailer New York & Co., filed a voluntary petition for reorganization under Chapter 11 on July 13 with plans to close most, if not all, of its stores. The company has launched the liquidation process and is evaluating strategic options, including the possible sale of its e-commerce business and related intellectual property.

Last month, RTW Retailwinds ranked 14th out of the 15 retail companies with the highest odds of defaulting within a year, according to Market Intelligence’s fundamental probably of default model.

Apparel brand Brooks Brothers Group Inc., founded in 1818, filed for bankruptcy July 8. The company listed both its assets and liabilities in the range of $500 million to $1 billion. A venture between mall owner Simon Property Group Inc. and apparel licensing firm Authentic Brands Group LLC will provide $80 million in bankruptcy financing to Brooks Brothers, according to The Wall Street Journal.

BHS Foodservice Solutions, which sells restaurant equipment and supplies, on June 26 filed a voluntary petition for liquidation under Chapter 7.

Other companies that filed for Chapter 11 bankruptcy in the period leading up to July 16 include home decor retailer Old Time Pottery Inc.; clothing retailer Lucky Brand LLC; Muji U.S.A. Ltd., which sells clothing, household goods and food items; and Sur La Table Inc., which operates a chain of stores that sell cookware, cutlery, dinnerware and other products.

Employment

The retail sector in June gained about 740,000 jobs, a 5.42% month-on-month increase, to 14.4 million jobs, according to a July 2 monthly report from the U.S. Bureau of Labor Statistics.

Employment at clothing and clothing accessories stores increased 35.64% in June to 767,200 jobs. These stores gained 201,600 jobs during the month.

Furniture and home furnishings retailers added 84,200 jobs, up 28.30% from the previous month to 381,700.

Sporting goods, hobby, books and music stores registered an increase of 17.84%, or 65,500 jobs during the month to 432,700 total. General merchandise stores added 108,100 jobs, a month-on-month increase of 3.66%.

Vulnerability

A July analysis of the one-year probability of default scores identified 15 public retailers with scores ranging from 32.2% to 11.8% and corresponding implied credit scores of “ccc-” to “ccc+.”

The calculated one-year probability of default remained unchanged for all of the companies on the list except Merion Inc. and Twinlab Consolidated Holdings Inc.

Merion, which provides health supplements and personal care products, saw its one-year probability of default rise to 32.2% from 31.2% in June. The probability of default for Twinlab Consolidated Holdings increased to 24.7% from 24.2% the prior month.

All the retailers on the list held on to their spots, but Trans World Entertainment Corp. moved up one place to No. 14 after RTW Retailwinds filed for bankruptcy. This change also introduced a new company to the list: Kirkland’s Inc., a specialty retailer.

Kirkland’s on June 4 reported a pretax loss of $27.7 million for its first quarter as the coronavirus pandemic affected sales.

S&P Global’s Fundamental Probability of Default Model provides a fundamentals-based view of credit risk for corporations by assessing both business risk — including country risk, industry risk, macroeconomic risk, company competitiveness and company management — as well as financial risk, such as liquidity, profitability, efficiency, debt service capacity and leverage. For a more thorough review of the model, see the PD Model Fundamentals – Public Corporates white paper.
S&P Global

 

‘Pretty Catastrophic’ Month for Retailers, and Now a Race to Survive

Posted on by katiecmorgan

March brought a record sales plunge as the coronavirus outbreak closed stores. A long shutdown could leave lasting changes in the shopping landscape.

Retail sales plunged in March, offering a grim snapshot of the coronavirus outbreak’s effect on consumer spending, as businesses shuttered from coast to coast and wary shoppers restricted their spending.

Total sales, which include retail purchases in stores and online as well as money spent at bars and restaurants, fell 8.7 percent from the previous month, the Commerce Department said Wednesday. The decline was by far the largest in the nearly three decades the government has tracked the data.

Even that bleak figure doesn’t capture the full impact of the sudden economic freeze on the retail industry. Most states didn’t shut down nonessential businesses until late March or early April, meaning data for the current month could be worse still.

“It was a pretty catastrophic drop-off in that back half of the month,” said Sucharita Kodali, a retail analyst at Forrester Research. She said April “may be one of the worst months ever.”

The resulting job losses continue to mount. Best Buy, which has 125,000 employees over all, said Wednesday that it would furlough 51,000 hourly store workers beginning Sunday, including nearly all of its part-time staff.

And in the months ahead, the question is how quickly spending will bounce back once the economy reopens, and how many businesses will survive until then.

People who lose jobs won’t quickly resume spending once businesses reopen. And those willing to spend may be reluctant to congregate in malls, restaurants and other businesses that rely on face-to-face contact.

Michelle Cordeiro Grant, chief executive and founder of Lively, a lingerie brand acquired by Wacoal last year, said it wasn’t clear how customers would want to shop and “what the new culture of shopping in physical retail will be.”

“Do they want to have a different type of fitting-room experience?” she mused. “Do they want our associates to wear masks and to be offered a mask? What is the try-on situation?”

When demand does rebound, it might come too late for some retailers, many of which were struggling even before the pandemic because of changes in mall traffic and a long-term shift to online sales.

The disruptions from the pandemic may ultimately hand more power to retailers able to continue operating stores during the crisis.

“It’s only going to cause a shakeout of a lot of retailers, and I think long term it just means that some of these big guys get less competition,” Ms. Kodali said. “The less competition they have, the worse they can treat everybody, whether it’s a supplier, a customer or an employee.”

Economists often distinguish demand that is deferred because of a crisis from demand that is destroyed. Retail probably has some of each. Someone who needs a new dishwasher might put off the purchase but will probably buy one eventually. But an office worker who puts off a springtime wardrobe refresh might just skip a year, meaning those sales are simply lost.

“Pent-up demand is what drives recoveries, and the good news there is we will come out of this with some degree of pent-up demand,” said Ellen Zentner, chief U.S. economist for Morgan Stanley. She added, however, that there are “a lot of caveats.”

Apparel retailers, in particular, seem to be preparing for a substantial amount of destroyed demand. Deborah Weinswig, founder of Coresight Research, an advisory and research firm that specializes in retail and technology, said she had spoken with retailers who were preparing for holiday sales to be 40 percent lower than last year.

Gap, which has been trying to rehabilitate its namesake brand in recent years with limited success, said it would continue “aggressively” closing the brand’s stores.

“This crisis will absolutely set a new baseline for what component of the fleet we want to keep,” Katrina O’Connell, Gap’s chief financial officer, said last week on a conference call with analysts and investors.

Clothing stores were especially hard hit in last month’s plunge, with sales falling by more than half. Spending on cars and car parts fell more than 25 percent in March, seasonally adjusted. Sales at gas stations, pushed down by low oil prices as well as reduced commuting, fell 17 percent. The exceptions were grocery stores, pharmacies and other sellers of essential items, which had a surge of demand as consumers stocked up.

Previously, the largest one-month drop in retail sales came in the fall of 2008, when the financial crisis led spending to plunge nearly 4 percent for two straight months. Sales ended up falling more than 12 percent before they began to recover. But as bad as that downturn was, sales never ground to a halt the way they have in recent weeks, said Jack Kleinhenz, chief economist for the National Retail Federation.

“It was a very severe contraction, but the gears of the economy were still working,” he said.

The rebound this time will probably look different as well, Mr. Kleinhenz said. After the last recession, it took a while for consumers to feel that their jobs were secure and that they could resume spending. Now there will be the added hurdle of assuring shoppers of their physical safety.

“The fear can be as damaging to the economy as the disease itself,” he said.

What happens to retail matters to the broader economy. The sector accounts for more than one in 10 U.S. jobs; only health care employs more. Its stores generate billions of dollars in rent for commercial landlords, ad sales for local media outlets, and sales-tax receipts for state and local governments.

If retailers survive and can quickly reopen and rehire workers, the eventual economic recovery could be relatively swift. But the failure of a large share of businesses would lead to prolonged unemployment and a much slower rebound.

Economic policymakers in Washington have been trying to avoid that kind of cascade of business failures. The $2 trillion emergency package passed by Congress and programs announced by the Federal Reserve include government-backed loans and grants to keep businesses afloat.

Those initiatives have gotten off to a rocky start, however, with many businesses reporting difficulty applying for loans.

“They need lifeboats, and the lifeboats aren’t getting out there fast enough,” said Diane Swonk, chief economist at Grant Thornton. “This is a time when speed matters more than bureaucracy.”

John Horrocks closed BlackBird Frame & Art, a custom framing business in Asheville, N.C., because of county orders on March 26 and anticipates it will remain closed through May. Mr. Horrocks, who owns the shop with his wife, is working with a local bank to secure a loan through the federal Paycheck Protection Program, which would help pay the staff until the business reopens.

Mr. Horrocks, 65, said that he expected to make payroll through May “without a problem,” but that “beyond that, it gets very, very difficult.”

A recent survey by a team of academic economists found that two-thirds of small-business owners said they could carry on if the crisis lasted a month, but only a third said they would survive if the disruption dragged on for four months.

“There’s no question that if it goes on for four to six months, it will be catastrophic,” said Edward Glaeser, a Harvard economist who was one of the study’s authors. “For many businesses, almost assuredly the answer will be closure.”

The steep sales drop underscores the huge role that physical stores continue to play within retailing. Even as online businesses at major apparel chains and department stores have gained ground in recent years, they can’t make up for the shuttering of malls and stores.

“We’re going to come out of this having accelerated some of the trends that were already in place,” Ms. Zentner of Morgan Stanley said. “Internet taking share from brick and mortar, that’s going to be accelerated.”

Some chains have recently rolled out contact-free curbside pickup for products. But in the long run, retailers want customers to walk around stores and talk with staff members so that shoppers take “a second bite of the apple” as they browse, said Craig Johnson, president of Customer Growth Partners, a retail consulting firm.

In a sign of the industry’s upheaval, J.C. Penney, which has more than 800 stores, did not make a $12 million interest payment due Wednesday and has 30 days before it is considered in default. A company representative said it was a “strategic decision” to forgo the payment after discussions with lenders since last year to strengthen the chain’s financial position. That has become more important with the closing of its stores, the representative said.

For many of the nation’s nearly 16 million retail workers, the standstill has meant a loss of their livelihood, often overnight.

When Mia Lupo showed up to work at Bloomingdale’s in Norwalk, Conn., on March 16, it was clear that nothing was normal. The few customers were mostly making returns or buying sweatpants to prepare for working from home. Workers were worried about their jobs, but also about their safety.

“None of us had any idea what was going on,” Ms. Lupo, 27, said. “We’re just like panicking because we’re all hourly-wage workers. We need the money, but we also don’t want to get sick and we don’t want our families to get sick.”

The next day, Bloomingdale’s parent company, Macy’s, announced it was closing its stores — news that Ms. Lupo learned on Twitter — and it later furloughed nearly all its workers. She is now awaiting her first unemployment payment.

By Sapna Maheshwari and Ben Casselman

NY TIMES

NABE economists see US reopening in mid-2020 but with uneven recovery

Posted on by katiecmorgan

NEW YORK (ICIS)–US economists featured by the National Association for Business Economics (NABE) see the US economy opening up largely by mid-year but with an uneven recovery through 2020.

“My belief is that the severe contraction continues not only in the second quarter but in the third quarter, with a gradual upturn in the fourth quarter,” said Jack Kleinhenz, chief economist of the National Retail Federation.

“I see more of a rolling recovery, like a rolling recession. It will take opening of different parts of the economy at a different pace and different time,” he added.

Kleinhenz and other economists spoke on the 13 April US Macroeconomic Update and Outlook Webinar hosted by the NABE.

On 29 March, the US extended its nationwide social distancing guidelines through the end of April. Non-essential workplaces remain closed.

“In terms of when the economy can reopen, as economists we should pay more attention to the epidemiologists because it will be difficult to reopen broadly unless we have testing, perhaps antibody testing to understand where the virus is under control and where it isn’t,” said Sara Rutledge, managing director at StratoDem Analytics.

“The most likely scenario is that it will take 12-18 months before we have something akin to a vaccine that would allow a return to normalcy… In general, I think we could see some movement to that direction in the second half of the year,” she added.

While the US economy may reopen, it will largely be an uneven recovery, with regional and end market variances.

“I think the economy will be allowed to reopen after Memorial Day (25 May). That does not mean all things are going to reopen. I think large parts of the economy are going to remain shut down simply because of lack of demand,” said Robert Fry, chief economist of Robert Fry Economics LLC.

“People are not going to go on cruises, they’re not going to fly unless it’s absolutely necessary. I think a lot of people are still going to hesitate about going out to restaurants and especially movie theaters and other theaters,” the former DuPont economist added.

Chris Varvares, co-head of US economics at IHS Markit, also sees a post-Memorial Day reopening as reasonable, but noted concerns about consumer behaviour.

“It’s not clear what will happen with consumers – that’s totally an unknown at this point. Remember after 9/11 it took two years for air passenger miles to get back to the prior peak… Every flight could have the coronavirus on it so that’s likely to keep air travel pretty suppressed for quite some time,” said Varvares.

In the NABE’s April 2020 Flash Outlook Survey, economists see US GDP of -26.5% in the second quarter, followed by a 2.0% gain in the third quarter and a 5.8% increase in the fourth quarter.

Focus article by Joseph Chang

International Commodity Intelligence Services

NRF Economist: Pandemic Won’t Wreck the Economy

Posted on by katiecmorgan

WWD

The question is whether retailers will rebound from pandemic caused losses and how long it will take. 

By David Moin April 1, 2020

 

The National Retail Federal, the lobbying arm and booster for retailers, isn’t about to “sugar coat” the outlook for business amid the pandemic.

“We expect a severe contraction, and if the nation doesn’t get the virus under control, the fallout will be worse,” NRF chief economic Jack Kleinhenz wrote in the April issue of NRF’s “Monthly Economic Review.”

“With shelter-in-place or stay-at-home directives, retail foot traffic is nearly nonexistent,” Kleinhenz sais.  “This is a serious time for retail firms as they try to sustain themselves, but the loss of income for both consumers and businesses is not distributed evenly.  Some ‘nonessential’ retailers will see huge losses and many retail workers will lose their jobs.  Yet other ‘essential’ merchants will benefit from stable revenues and their workers will have secure jobs as they try to keep up with the demand for goods and services.

Kleinhenz also warned that retail sales data for MArch- the first month when the outbreak had fully hit the U.S. – could be unreliable because many retailers whose businesses had closed were not in the office to reply to the Commerce Department’s Monthly survey of sales results.  So it could be some time before there’s reliable data revealing just how hard retailers have been hit financially by the pandemic.

Nevertheless, Kleinhenz underscored that while the coronavirus pandemic “has triggered shocks,” the underlying economy is healthy.  He wrote that the U.S. benefited from “sound fundamentals” going into the COVID-19 crisis, including sturdy employment gains, low inflation and high consumer confidence, and wasn’t “broken” like it was during the Great Recession of 2007-2009.  “Once the pandemic is over, we hope we will find that there is nothing structurally wrong with the economy and that any deficiencies were solved by monetary and fiscal policies,” Kleinhenz said.

Recent actions by the Federal Reserve and Congress, including the loans, tax relief and checks for consumers in the Coronavirus Aid, Relief and Economic Security signed into law last week, will help by providing liquidity and keeping credit available for retailers and other businesses, Kleinhenz said.

Still, “All the policy we throw at this will not help unless we reduce the public health risks,” Kleinhenz.

Gross domestic product that was growing at a 2.1 percent annual rate at the end of 2019 is “about to go into a mandated nosedive,” according to Kleinhenz.

He cited several troublesome statistics, including unemployment claims which “soared” to 3.3 million during the week ending March 21, nearly five times the previous record of 695,000 set in October 1982.  “With millions out of work across economic sectors and stores and restaurants closed to promote social distancing, retail foot traffic is nearly nonexistent,” said Kleinhenz.

“Nonetheless, we do not believe today’s situation presages a prolonged economic downturn,” said Kleinhenz.  “Once the pandemic is over, we hope we will find that there is nothing structurally wrong with the economy and that any deficiencies were solved by monetary and fiscal policies… The big question is, ‘can we get back to normal and how soon?”

American consumers, once bulwark of economy, are rapidly losing confidence

Posted on by katiecmorgan
    • By Don Lee Los Angeles Times (TNS)

Updated 

In another warning sign of how hard the coronavirus crisis may punish the U.S. economy, American consumer confidence in March saw its sharpest drop since the Great Recession in 2008.

Until now, relatively high levels of confidence have consistently buoyed personal spending and the economy as a whole because 70% of total U.S. economic output, or gross domestic product, is tied directly to consumer spending.

Richard Curtin, director of the University of Michigan’s closely followed confidence survey, said the findings may significantly understate the reversal underway because most of its interviews were conducted before lockdowns and physical distancing were widely ordered in mid-March. The survey was released Friday.

Anecdotal reports indicate online sales are also up sharply at many firms.

And House passage Friday of the roughly $2-trillion stimulus plan is expected to help lift consumer sentiments and spending, as well as the broader economy — at least for the immediate future.

The package includes direct payments of $1,200 to most individual taxpayers as well as a wide range of spending to boost unemployment compensation and to help keep people from getting laid off.

“If we could replace some of the lost income, that’ll provide a backstop for people to at least feel they have spending power when they need it,” said Jack Kleinhenz, chief economist at the National Retail Federation, a trade group.

President Trump has been eager to lift restrictions that have kept millions of Americans hunkered down in their homes, and he has repeatedly predicted a sharp economic turnaround due to pent-up demand.

“I think we are going to have a tremendous rebound,” he said Friday before signing the $2-trillion bailout bill.

But many economists agree that the recovery is likely to be slow, not the quick snap back that Trump suggests.

“Will we have lingering issues that will mute some of the recovery? Yes,” said Shawn DuBravac, an economist who specializes in consumer electronics.

One big reason is uncertainty over the spread of the COVID-19 disease and the many months likely to be needed to produce a vaccine for widespread distribution.

Another reason for analysts’ concern is that many businesses and households have lost incomes and earnings, and the plunge in stocks has hammered people’s retirement finances, as well as their feelings of security.

The Dow on Friday ended a three-day rally by falling 915 and is now down 27% from its mid-February high.

The University of Michigan survey showed a sharp negative turn in people’s attitudes not just about current conditions but also future expectations for the economy and their personal financial situation.

Curtin said the latest survey data suggest that the economy has already entered a recession and that “the economic downturn could persist at least until the end of the year.”

The index saw an 11.9 percentage point drop, compared to the 12.7 point drop during the Great Recession.

“Perhaps the most important takeaway is that the largest proportion of consumers in nearly 10 years anticipated that the national unemployment rate will increase in the year ahead,” Curtin said.

Curtin said Friday that he doubts the economy will bounce back quickly after the worst of the pandemic passes.

Some spending will rise as people replace broken appliances and vehicles, but overall spending will “seriously diminish,” he said.

Even if consumers feel comfortable going out to shop again in physical stores, Curtin thinks many will put off big discretionary spending and instead save more money because of uncertainties.

“It’s an issue of their finances,” Curtin said. “Most households wish they had more cash on hand, and that’s going to continue in the next several months.”

On the bright side, consumers are spending substantially more at supermarkets and drug stores as well as other sellers of personal goods. And many Americans are buying more online than before.

Garrett Breton, president of Comfort One Shoes, which operates 16 stores in Maryland, Virginia and Washington, D.C., said his company had the best-ever sales online on Wednesday — up 140% compared with the same day a year ago. Some of the biggest increase has been in running shoes.

“I think what people are doing and able to do right now is to take walks with their families, go running and exercise outside,” Breton said.

He also sees a silver lining for future online sales in that many people who had never shopped over the internet are doing so now — and will probably continue after the health crisis ebbs.

Nationwide, online sales were growing even before the virus outbreak. In the fourth quarter, e-commerce sellers sold $158 billion worth of goods, accounting for 11.4% of total retail sales, the highest on record, according to Commerce Department data.

But at Comfort One Shoes, online sales make up about 18% of the company’s revenue. And Breton said the company could have trouble stocking merchandise in the coming months as most of his shoes are imported from Europe, which almost certainly will fall into a deeper recession than the United States.

Breton expects all of his stores to stay closed for another two weeks, and then for business to come back gradually.

“It’s going to be a slow climb out,” he said.

Hopes for a sharp economic recovery in Colorado and nationwide fade as outbreak intensifies

Posted on by katiecmorgan

Times Call

The nation’s leading business economists are growing more pessimistic by the day about the chances for a sharp rebound from what they call an economic shock unlike any the country has ever seen.

“I won’t candy coat the outlook. It is obvious we will see a severe contraction,” Jack Kleinhenz, chief economist of the National Retail Federation, said on a conference call hosted by the National Association of Business Economics on Monday.

Initially, the hope was that the U.S. economy might quickly rebound once infections declined, restrictions on movement were lifted and fiscal stimulus kicked in. That was the V-shaped recovery scenario. Then economists began talking about a more stretched out or U-shaped recovery as cases rose, unemployment claims spiked and California, New York and Illinois locked down their populations. Denver County on Monday joined that group, ordering its residents to shelter-in-place as of 5 p.m. on Tuesday, before loosening up the rules to let people continue to visit liquor stores and recreational marijuana dispensaries after those were hit with a rush of shoppers. The city of Boulder also issued a stay-at-home order on Monday.

“It will not be a V-shaped recovery. It won’t even be U-shaped. It will be L- or hockey-stick shaped,” said Yelena Shulyatyeva, a senior U.S. economist with Bloomberg. “It is not a temporary situation. It will stay with us for some time.”

Chinese consumers cut spending by 20% during the country’s lockdown, but the U.S. is facing a contraction of 30% or more, said Kleinhenz. Consumer spending accounts for about 70% of the U.S. economy and businesses are rapidly jettisoning workers rather than trying to ride the storm out.

As for a path back to normal, “We don’t have a road map to do that,” Kleinhenz said.

Colorado, despite having one of the more diversified state economies, also has a heavy concentration of jobs in tourism and oil and gas, another industry that could see layoffs soon if there isn’t a rebound in prices, which are down by two-thirds from the start of the year. Demand for oil has fallen 10% in three months. The last time it fell that much was in 1979, and that decline happened over three years, said Mark Finley, a fellow at the Baker Institute Center for Energy Studies.

At the same time as demand is dropping, Russia and Saudi Arabia are ramping up production in a price war. Once storage capacity fills up, prices could see another wave down unless the two countries reach an agreement to cut production, Finley warned.

The study didn’t include retail as a high-risk category, but brick-and-mortar retailers in the state, who employ an additional 272,200 workers, are shutting down operations. Belmar in Lakewood said it was closing down at 7 p.m. on Monday and would reopen on April 6.

“Thank you for your understanding as we move through these unprecedented times together,” the outdoor mall said in a release.

On Sunday night, St. Louis Fed President James Bullard told Bloomberg in an interview that U.S. GDP could be cut in half in the second quarter. Those kind of declines are associated with a depression, not a recession.

“This is a planned, organized partial shutdown of the U.S. economy in the second quarter. The overall goal is to keep everyone, households and businesses, whole” with government support. It is a huge shock and we are trying to cope with it and keep it under control,” he said.

When asked whether the current situation resembled the Great Depression, a member of the NABE panel said it didn’t. As long as the financial system holds up, which it appears to be doing thanks to massive intervention by the Federal Reserve, then the country should avoid a depression, said Ken Simonson, chief economist with the Associated General Contractors of America.

“We haven’t had banks closing all over the country. We have a much more robust financial safety net,” he said. “We are not in for 10 years of declining or subdued activity.”

Another sign that employers are losing hope for a fast rebound in the economy — they are laying off their workers in large numbers rather than waiting out a temporary disruption. Research consistently shows that employers who aggressively cut staff in response to a downturn harm their long-term prospects much more than those who grit it out, said Wayne Cascio, a distinguished professor of management at the University of Colorado Denver, an expert on the topic.

 

“Employers should do as much as they can to avoid cutting people with mission-critical skill,” he said. “The longer they can hold out before taking drastic action, the better off they will be.”

But he also acknowledges the country has never faced a shutdown on a scale it is now seeing. Many of the first wave of layoffs are coming in industries that pay lower wages and have higher turnover. Workers in hospitality and retail are more likely to be viewed as easily replaceable rather than mission-critical. Yet, the severity and swiftness of those layoffs will reverberate throughout the economy, and delay any recovery.

Last week, the Colorado Department of Labor strained to process 26,000 claims for unemployment benefits, and many displaced workers said they were blocked from filing. On Monday morning, the department fielded  86,000 calls before the phone queue opened at 8 a.m., noted executive director Joe Barela. A week ago, there had been 9,000 calls before the queue had opened.

“All of our systems are overloaded — as are UI systems across the country — and we know frustration and anxiety is high. We are doing the best we can to navigate these uncertain times and want claimants to know their benefits will not be reduced due to any filing delays,” he said in an update sent by email.

It will take several weeks for official measures to capture what is happening this month. But surveys are showing massive job losses that are causing consumer confidence to quickly evaporate. Maintaining that confidence was key for any V-recovery.

LendEDU surveyed 1,000 adults in the U.S. and found that 6% said they had already lost their job because of the COVID-19 outbreak, while 11% had retained their jobs but weren’t working, making them likely candidates for a future layoff. Another 13% had their work hours reduced. The survey also found that among those who had lost work, 82% said they were living paycheck-to-paycheck. They have no reserves to fall back on.

Homebase, which provides an online system for tracking employee work hours, reports a 40% drop in Denver-area business clients still open as of Sunday, and a 53% decline in the number of workers clocking in on its system.

A Majority of Economists Think There Will Be a Recession by the 2020 Election

Posted on by katiecmorgan

How’s the Economy Doing?

Better than you might expect, and worse than you might have hoped, according to the National Association of Business Economics.

According to the organization’s latest survey of 53 professional economic forecasters, the consensus is that the economy will continue to grow at a 2.6% pace in 2019, down from last year’s 2.8% rate, and will slow to 2.1% in 2020. However, as the outlook for this year still seems good, a majority think a recession is possible before the next presidential inauguration.

Personal spending remains a bright spot. “The consumer continues to be the driver in the U.S. economy,” said Jack Kleinhenz, chief economist for the National Retail Federation and one of the analysts of the report. “Real personal consumption expenditures for 2019 is 2.4% year-over-year growth. It was 2.6% in 2018.”

But not all is good. “There are really headwinds in the housing market in terms of residential investment,” Kleinhenz said about this important “piece of the consumer equation.” The group expects that residential investment in 2020 will be down 1.3% from 2019’s levels. Because home prices have risen, particularly in the lower third of housing stock, many are now priced out of the market.

More than half of the panel said “the greatest downside risk is trade policy and increased protectionism,” Kleinhenz said. The thorny issue is a major driver of the possibility that growth could collapse by the end of next year. Right now, only 15% of the participants expect a recession in 2019. But by the end of 2020, the number rises to 60%. Because the November election is in the last quarter, if the majority of predictions are right, a recession would begin by then.

Only 35% thought that when the group surveyed its members in March. And these results do not fully take into account the escalated trade war situation. “Since the survey was done between May 6 and 14, 2019, the panelists could not take into account the most recent proposal by President Trump to impose a series of tariff increases from 5 to 25 percent on Mexico,” said Stephen Miller, director of the UNLV Center for Business and Economic Research at the University of Nevada, Las Vegas. “This significantly raises the uncertainty in international markets and would significantly lower the growth forecasts that are reported today as well as increase the projected likelihood of a recession.”

That drives up the chances that CEOs and CFOs could be “hesitant to spend their ample retained earnings gained over the last number of years,” said Benjamin Pace, chief investment officer and partner at Cerity Partners. “This hesitancy could slow economic growth to a trickle and even provoke recession sooner than one needs to occur based on the current strong shape of the US consumer.”

ERIK SHERMAN

FORTUNE

June 4, 2019

Tinier tax refunds hurt ritzy shops more than discounters

Posted on by katiecmorgan

Lower, slower income tax refunds that have dragged on retail sales this year are disproportionately hurting upscale stores, since high-income shoppers are more likely to get an unexpected bill from the Internal Revenue Service under changes backed by President Trump and congressional Republicans.

February revenue at U.S. retailers fell 0.2 percent from the month before to $506 billion, the Census Bureau said Monday, and merchants placed much of the blame on cold weather, stock market fluctuations, and shrinking refunds after a GOP-led tax overhaul that eliminated or cut many of the deductions once claimed by people earning $100,000 a year or more.

Those changes, and Treasury Department efforts to buoy take-home pay through adjustments to withholding tables, left some taxpayers getting little to no money back from the IRS and often having to make surprise payments.

The total number of payouts issued so far this year is down 2.6 percent from the same period in 2018, according to IRS data, and the amount has dropped 2.9 percent to $191.9 billion. The refunds have already become a talking point in the 2020 presidential race, and a CNN poll last year showed the tax bill — which granted a large break to businesses — dragged on Republicans in the 2018 midterms when voters gave Democrats a majority in the House of Representatives.

“We see the most risk to households in the upper-income demographics, particularly those that live on the coasts, as they likely get impacted” by limits on state and local tax deductions, said Michael Lasser, an analyst with Swiss lender UBS. That weighs on retailers such as Restoration Hardware and Williams-Sonoma, while leaving discount stores such as Walmart unfazed, he said.

It’s “something that we’re watching closely,” Jack Preston, senior vice president for finance at Corte Madera, Calif.-based Restoration Hardware, told investors and analysts last week. “We’ve heard anecdotes of people being surprised with the tax bills as they prepare their tax returns.”

Overall, however, store owners remain optimistic about the rest of 2019, according to the National Retail Federation, which represents businesses contributing $2.6 trillion a year to the U.S. economy. The group’s chief economist, Jack Kleinhenz, noted that original estimates for January sales were revised upward and that online merchants saw gains compared with both the previous month and February 2018.

“The consumer has not forsaken the economy as some previously claimed,” he said in a statement. “We still expect growth to pick up, fueled by strong fundamentals like job and wage growth.”

The jobless rate remained at 3.8 percent in February, near a 50-year low, and average hourly pay grew 3.4 percent to $27.66, according to the Bureau of Labor Statistics.

by James Langford
 | April 01, 2019
Washington Examiner