NRF Economist: Pandemic Won’t Wreck the Economy


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?”

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

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.


Many say the only constant in life is change, and nothing could be truer for the retail industry. When it comes to retail sales, which depend on a multitude of factors but mostly the confidence and ability of consumers to spend — both on necessities and discretionary purchases — retailers know change is guaranteed.

Given that we are now at the mid-point of the year, it’s important to reassess where the industry stands as it relates to overall expected sales growth. There are plenty of factors to consider, and given the fluctuations in economic activity through the first half of the year, we believe it is necessary to adjust for the significant variances seen thus far in sales and consumer spending.

NRF in February forecast that retail sales would increase 4.1 percent through the year, including online and other non-store sales. Unfortunately, that outlook has not played out precisely as anticipated. A confluence of events — including treacherous weather through most of the winter, West Coast port disruptions, a stronger U.S. dollar, weak foreign growth and declines in energy sector investments — all significantly impacted retail sales so far this year, and have changed how future sales will shape up for the rest of the year. Additionally, household spending patterns have also recently shifted purchases toward services more than purchases of goods — another contributing factor to lackluster sales results.

As such, NRF is now forecasting that retail sales — excluding automobiles, gasoline stations and restaurants — will increase only 3.5 percent for the year. Online/non-store sales, which are included in the overall figure, are expected to grow between 6 and 8 percent the remainder of the year rather than the 7-10 percent initially forecast for the full year. And we expect gross domestic product to increase between 2.7 and 3 percent during the second half.

While many of the aforementioned factors will not likely be repeated in the coming months, there are some that could linger and somewhat cloud the economic outlook. The impact of the strong U.S. dollar on trade and lower oil prices on energy investments remain as headwinds and could further temper the pace of economic growth.

However, recent economic indicators do suggest that the economy is turning a corner, fortunately putting to rest any concerns that the expansion has stalled. My second-quarter estimates for economic growth are now above 2 percent, which suggests that first-quarter weakness was more of an aberration than a continuing trend. And the job market continues to make strides with nearly 3 million more jobs than a year ago.

We think we’ll see a better second half of 2015. Real consumer demand has actually been stronger than what nominal retail sales have indicated, and deflationary pricing is helping keep receipts low for U.S. households. Going forward, retail sales should register further strength, and resilient consumers should never be counted out.

As for the economy, we believe we’ll see continued growth but recognize that there are critical potential “tipping points,” including foreign markets and wage growth.