While retail sales dropped by 8.7 percent in March—the largest decline on record—customers spent more at grocery stores than anywhere else for the first time ever, a report finds.
According to a report from the Wells Fargo Securities Economics Group, sales from grocery and general merchandise stores including warehouse clubs like Costco and Sam’s Club, were up by 26 percent from February. That’s the best monthly gain for those businesses.
The Wells Fargo economists say the historic retail sales decline “sets up consumer spending to be a major drag on GDP growth in the second quarter.”
The data shows it was also the worst monthly drop for auto dealers, furniture stores, clothing retailers, sporting goods stores and restaurants. The report notes bars and restaurants typically make up a 12 percent share of retail sales, but these types of establishments are seeing deep declines, and those that can remain open are only able to do takeout or delivery. The March share for those businesses dropped to 10 percent.
The economists noted that not all the news in the monthly retail report was bad. Control group retail sales, which take away the sales of automobiles, gasoline, building materials and restaurants, closely track with personal consumption expenditures and posted a gain of 1.7 percent. The economists stated in the Wells Fargo report that they expect a first-quarter PCE drop of 1.5 percent, reaffirming their expectations that the “weakness will largely be concentrated in the second quarter.” They anticipate the slowdown in consumer spending will be a major drag on GDP growth in the second quarter.
March is usually the fifth-slowest month of the year for grocery sales and sales usually increase if Easter falls in March. This year, Easter was April 12. But amid consumers’ fears of running out of basic necessities like toilet paper and food, grocery and general merchandise stores reported record traffic in March.
“The never-before-seen surge at the nation’s grocery stores resulted in it becoming the largest category of overall sales, unseating motor vehicles for the top spot,” according to the report.
Meanwhile, the Wells Fargo Securities Economics Group is bracing for a record-low quarterly decline in PCE during the second quarter of 2020, which runs through June 30. However, the team notes that if the virus is under control by the summer, it expects a “swift rebound in the second half of the year.”