Regular readers of our insights know that we focus on the linkage between the labor market, personal consumption and gross domestic product. Sixty-eight percent of the U.S. economy is driven by spending, and people without jobs, or who are worried about their jobs, do not tend to spend much money. One of the most unusual things about the current economic crisis is that, due to continued social distancing and sheltering at home, even people who want to spend money find it more difficult to do so. This dynamic, on top of historically high job losses, makes for a most difficult spending and economic environment.
These dynamics are starting to show up in the data. After dropping 8.3% from February to March, retail sales plunged an additional 16.4% in April. The rapidity of this decline underscores how quickly households reined in their spending, beginning in March and extending into April. It is not clear whether this trend will linger into the May figures as well or if the gradual reopening of some regional economies will serve to dampen the downside.