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What Are Retail Sales Saying About the Economy?

by Garrett Kunz   ·  May 18, 2020  
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Retail Sales Numbers

Retail sales numbers for April were released last week, and the basic story was no surprise. Retail sales fell a record 16.4% in April, after declining 8.4% in March, already the largest decline since the government started keeping records in 1992.

The year-over-year decline of more than -21.6% has already topped the -11.5% seen during depths of the financial crisis, as shown in the accompanying chart. But there are hints that the decline has been heavily influenced by store closures rather than shoppers tightening their belts, and that might bode well for the future as the economy gradually starts to open up.

Retail Sales Percent Change from Year Ago

“One of the reasons for the major decline in retail sales is simply because many businesses are closed,” said LPL Financial Chief Investment Officer Burt White. “As the economy slowly opens back up, retail sales should bounce back, as pent-up demand is there”

Effects of Businesses Closing

Effects of Businesses Closing

For the past two months, the economy experienced an 89% decline in apparel sales and a 59.2% decline in restaurant sales.  These numbers capture the effects of businesses closing.  The one area of the retail sales numbers that has done relatively well? Groceries had a record April as consumers stocked up and continued to show some strength in May.

Factors Supporting Retail Activity

Supporting Retail Activity

While it will take time for retail sales to get back to normal, several factors are in play that should help support retail activity as the economy opens up. Pent-up demand is increasingly evident. Fiscal stimulus should help preserve incomes. And consumer balance sheets remain relatively healthy, with credit card debt declining the most in decades in March. While weakness will continue, April data may be the low point for retail sales, with good prospects for some strength in the second half of the year. A return to full strength will ultimately depend on the progress doctors and scientists make in limiting the dangers from COVID-19, but even the gradual opening up of the economy may show retail sales numbers starting to stabilize as early as next month.


IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

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