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Friday July 10th, 2020 6:18PM

US shoppers returned with vigor in May in partial rebound

By The Associated Press
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BALTIMORE (AP) — American shoppers ramped up their spending on store purchases by a record 17.7% from April to May, delivering a dose of energy for retailers that have been reeling since the coronavirus shut down businesses, flattened the economy and paralyzed consumers during the previous two months.

The government’s report Tuesday showed that consumers' retail purchases have retraced some of the record-setting month-to-month plunges of March (8.3%) and April (14.7%) as businesses have increasingly reopened. Still, the pandemic’s damage to retailers remains severe, with purchases still down 6.1% from a year ago.

Last month’s bounce-back by consumers comes against the backdrop of an economy that may have begun what could be a slow and prolonged recovery. In May, employers added 2.5 million jobs, an unexpected rise that suggested that the job market has bottomed out. Still, a big unknown is whether early gains in job growth, retail sales and other areas can be sustained in the coming months or whether they may plateau at a low level.

“This may very well be the shortest, but still deepest, recession ever,” said Jennifer Lee, a senior economist at BMO Capital Markets. But she added that it's “not likely that we’ll see a repeat in June as this is pent-up demand unleashed in one month.”

The return of shoppers last month was likely aided by the $3 trillion in rescue money that the federal government has provided to companies and households. Americans' retail purchases would need to surge by an additional 9% to return to their level before the pandemic.

Any sustained recovery, though, will hinge on an array of factors: The path of the coronavirus, how willing people are to shop, travel and congregate in groups, how many businesses manage to stay open and rehire many workers and whether the government provides additional support.

"While the big increase in retail sales in May is encouraging, there is still a huge amount of uncertainty about the strength of the rebound," said Gus Faucher, chief economist at PNC Financial Services. “It depends on a lot of factors outside of the economics.”

The virus-induced recession not only diminished spending in most sectors of the economy. It has also accelerated shifts in where people shop and what they buy. The changes forced by the coronavirus have aided online retailers and building materials stores and other outlets that stayed open during the outbreak. Other businesses are facing persistent financial strains.

Extending an ongoing shift in shopping habits, Americans last month stepped up their purchases at non-store retailers, which include internet companies like Amazon and eBay, by 9% after boosting such purchases nearly 10% in April. This category of sales is up a sizable 31% from a year ago.

When consumers do make purchases at physical stores, they're increasingly doing so for such items as buildings materials and groceries. Building materials stores posted a monthly gain of 11% last month and year-over-year growth of 16%. Shoppers have increased their grocery purchases by an annual 14%, with fewer of them dining at restaurants because of the pandemic.

Shoppers last month vastly increased their spending in other categories, too, though some of these sectors still face a dim future given the blows they absorbed in March and April. Clothing purchases soared 188% from April to May but remain down 63% over the past 12 months. Though consumers ramped up their spending at furniture stores by 90% last month, sales remain down more than 21% year over year. The same pattern holds for restaurants, electronics stores, department stores and auto dealers.

Americans' retail purchases account for roughly half of all consumer spending, which fuels about 70% of total economic activity. The rest of their spending includes services, from cellphone and internet contracts to gym memberships and child care.

Nearly 80% of small retailers and restaurants tracked by the scheduling tool Homebase that were closed in mid-April have since reopened. Yet these smaller businesses remain under pressure. Their stresses in part reflect changes emerging as social distancing has become essential and shopping habits evolve.

One such retailer, CPW, a women’s clothing store, has been in business for 30 years on Manhattan’s Upper West Side. A three-month shutdown resulting from the virus meant the store retained only 20% to 30% of its sales as the owner, Linda Wolff, packed and delivered orders to customer homes. Though CPW reopened for curbside pickup a week ago, Wolff said she hasn’t rung up a single such sale.

“This is my heart and soul,” she said. “I am exhausted from all the worrying.”

Some national chains, by contrast, say they have so far avoided their worst fears. Macy’s CEO Jeff Gennette has said that his company’s reopened stores are regaining 50% of their typical business. Teen retailer American Eagle Outfitters is faring even better, averaging roughly 95% of its normal sales levels.

But analysts caution that some of the gains in Americans' retail spending thus far probably reflect the impact of temporary government aid and expanded unemployment benefits in the face of a deep recession. The jobless rate is a historically high 13.3% by the government’s standard measure and an even worse 21.2% by the broadest gauge of unemployment. For now, Americans are spending disproportionately more on essentials and less on luxuries.

The lockdowns sent many mall-based chains further into peril. These retailers furloughed workers, slashed costs to preserve dwindling cash reserves and, in the cases of Neiman Marcus, J.Crew and JC Penney, filed for bankruptcy protection.

These troubles have contrasted with renewed strength for Walmart, Target and Home Depot, which were deemed essential businesses from the start and were allowed to remain open.

Coresight Research, a retail research firm, expects between 20,000 and 25,000 stores in the United States to close this year, about 60% of them in malls. That’s up from the firm’s previous estimate in mid-March of 15,000 closings, and it would surpass the record 9,000 stores closures last year. In the past week, Zara, Children’s Place and Signet Jewelers all announced hundreds of store closures and stressed the rising importance of their online presence.

___

D’Innocenzio reported from New York.

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