Consumers also pulled back on electronics, appliances, furniture and gasoline, and analysts say it could be years before spending inches back up to pre-pandemic levels.
“You’ve got the financial cloud over everybody’s head saying, ‘Hmm, do I really need this?,’ ” said Wendy Liebmann, chief executive of WSL Strategic Retail, a New York-based consultancy. “This double-barreled convergence of health and financial crises is going to keep people very cautious for the long haul."
A rebound, she said, would be gradual, even as states and municipalities begin allowing businesses to reopen. More than 20 million American abruptly lost their jobs in April, sending the U.S. unemployment rate soaring to 14.7 percent, the highest level since the Great Depression.
Consumer spending, which typically drives 70 percent of the nation’s economy, has largely hollowed out as Americans pull back on nearly every category. The two exceptions were grocery stores, where sales rose 13 percent from a year ago, and online sales, which jumped about 21 percent.
Some economists said the steep declines took them by surprise; forecasts had called for a 12 percent drop. It is likely, they said, the economic consequences of the pandemic could be far greater than initially predicted.
“Maybe the most important aspect of the retail sales drop isn’t how far they fell, but that forecasters so badly underestimated the numbers,” said Robert Frick, an economist for Navy Federal Credit Union, the country’s largest credit union. “It shows we still don’t have a handle on the depth of the recession and how Americans are reacting to the pandemic and lockdowns.”
Also on Friday, the University of Michigan’s consumer sentiment index showed that Americans felt slightly better about their economic prospects than they had in April. Economists attributed that optimism to the $1,200 stimulus checks many families received.
But consumers reported increasing anxiety about their financial futures, with expectations for the rest of the year falling to a six-year low.
A growing number of states are moving to ease restrictions on malls, restaurants, salons and other businesses that officials view as essential to rebooting the economy, even as public health experts caution against moving too quickly.
The pandemic has ushered in a wave of retail bankruptcies, with major chains such as J. Crew and Neiman Marcus filing for Chapter 11 protection in recent weeks. Stage Stores — which operates 738 stores in 42 states under Palais Royal, Gordmans and other nameplates — said Monday it will liquidate hundreds of locations and search for a buyer.
“The destruction of retailers, both large and small, has been discussed for weeks, but to see the actual impact on the sector is jaw-dropping,” Mike Loewengart, managing director of investment strategy at E-Trade, said in a note to clients.
Major chains, which temporarily closed more than 260,000 stores in March, have begun reopening stores in recent weeks. Some, such as Gap, have closed fitting rooms and bathrooms, while Best Buy is requiring customers to make in-store appointments. Even with such precautions, analysts say they expect long-term changes in how consumers shop.
The list of retailers fighting for survival, they say, will continue to grow. Closures could also have disproportionate effects on lower- and mid-tier shopping malls that faced uncertain futures even before the pandemic. For years, Americans shifted their shopping habits away from brick-and-mortar stores to embrace e-commerce offerings. Now, buying online is often the only — or safest — option.
Sung Won Sohn, professor of finance and economics at Loyola Marymount University, said even as the economy gradually reopens, other factors could continue to thwart retail sales. Scores of laid-off workers will not return to their jobs anytime soon. Many of the worst-hit industries, such as airlines, hotels and theaters, will have to slash capacity to uphold social distancing guidelines and swallow the cost.
“There will be massive bankruptcies of small businesses, a large source of jobs in America,” Sohn said. “The behavioral response from the shellshocked consumers is to hunker down and save as much as they can, lest the situation gets worse.”