The economic battlefront of the COVID-19 war is becoming even more pitched. And the size of the threat to consumers and businesses can be seen in the size of the response.
The U.S. Federal Reserve stepped into the fray again on Thursday, this time with the promise of $2.3 trillion — that’s trillion with a “T” — in loans to support the economy. The intent is to help households, employers and state and local governments patch holes in their budgets as social distancing keeps businesses closed. That comes on top of ultra-low interest rates and a $2 trillion stimulus package Washington lawmakers threw together last month.
All of that is a lot of money, but it’s being thrown at a massive problem.
Over 6.6 million Americans applied for unemployment payments last week, bringing the Labor Department’s total for the past three weeks to more than 16.4 million — an entirely unprecedented increase in joblessness. And economists expect the figure to continue to grow even more in the weeks ahead.
Wall Street was somehow able to look past that and focus on the Fed’s response on Thursday, driving the Dow Jones Industrial Average up 1.2 percent, or 285.80 points, to 23,719.37, although Blue Chip stocks are still down 19.7 percent since the market set its all-time high on just Feb. 12. (The New York Stock Exchange is closed for Good Friday, giving investors a long weekend to consider the fallout as they celebrate Easter via Zoom).
Since the high, retail is almost uniformly down with many of the department stores, or the companies that sell to them, trading down 40 percent or more. The exception proving the retail rule is Walmart Inc., which is up 5.6 percent since the high.
Although social distancing does seem to be paying some dividends, with hospitalizations leveling off in the hotspot of New York and some more-positive trends in California and in Europe, consumer confidence has been hit hard, with people waiting at home or venturing out only when necessary. Everyone is wondering just when and how it all ends.
With no easy answers, a kind of cottage industry of analysis has sprung up with experts from every walk of life studying and measuring the problem from different angles.
• WSL Strategic Retail’s Wendy Liebmann drew parallels to other life-altering events Americans have survived over the past two decades. “When confidence recovers — and it will — and when unemployment recedes — which it will — shoppers will return to stores, but their buying habits will be different,” she said.
• Consultancy Kantar released its largest global study into consumer attitudes, media habits and expectations, noting self-isolation has spurred a 70 percent increase in web browsing while social media engagement rose 61 percent over normal usage rates.
• And some analyses and research reports showed people miss stores, suggesting the economy could rebound strongly. “People are getting antsy and ready to get back to some form of normalcy,” said Greg Petro, chief executive officer of First Insight, which found in a survey that 60 percent of consumers in the U.S. feel stores should reopen by the end of May. (There are also plenty of bearish takes on the comeback.)
To help keep the economy from stalling out completely, the Fed will start offering an array of new loans and supports. It will feed funds to financial institutions to support the Small Business Administration’s Paycheck Protection Program, ensure $600 billion in loans to small and midsize businesses through the Main Street Lending Program and more.
Chairman Jerome Powell said the Fed was using emergency measures with the consent of the Treasury and sounded both philosophical and optimistic notes while taking measure of the problem.
“None of us has the luxury of choosing our challenges; fate and history provide them for us. Our job is to meet the tests we are presented,” Powell said Thursday. “When the spread of the virus is under control, businesses will reopen, and people will come back to work. There is every reason to believe that the economic rebound, when it comes, can be robust. We entered this turbulent period on a strong economic footing, and that should help support the recovery.”
Matthew Shay, ceo of the National Retail Federation, welcomed this “Bridge to the Other Side,” but made the case for additional help.
“There is more to be done,” Shay said. “We continue to press our case with the White House asking for deferred payment of duties on imported goods until the economy is on a stronger footing. And just today, on behalf of leading retailers across the country, we sent a letter to Congress outlining a number of recommendations that would help improve the effectiveness and impact of the CARES Act. From expanding eligibility to small businesses with multiple locations to increasing funding for Economic Injury Disaster Loans by $50 billion, we know that more can be done to provide certainty for the retail industry and the 52 million American jobs that depend on its health.”
The consumer shutdown has not just hurt retail revenues, but forced most chains to send employees home without pay — and contributing to the 6.6 million people added to the unemployment rolls last week.
In reporting the jobless numbers, the Labor Department said the seasonally adjusted insured unemployment rate was 5.1 percent last week, an increase of 3 percentage points from the previous week. Many states cited retail as one of the industries contributing to the increase in joblessness.
The weekly claims numbers are one of the few official economic indicators that are reported often enough to show real impact from the shutdown, which forced stores to close en masse in mid-March.
While many companies in fashion were able to keep workers on with full pay for the first few weeks, nearly all the big players — from PVH Corp. to Kohl’s Corp. to Levi Strauss & Co. — have had to furlough workers. That keeps them on the payrolls and in some cases with benefits, but stops their income and makes them eligible for unemployment benefits.
The measures are seen as temporary.
Stefan Larsson, president of Tommy Hilfiger and Calvin Klein parent PVH, told WWD this week: “Our intention is that this is all temporary through this crisis and then coming out of this, we look forward to the day when we can bring our teams safely back. And the decisions we make today are made to make us get through this time and then be able to bring the team back.”
Seventy-five percent of PVH’s 18,000 employees in North American are being furloughed or are having their hours cut.
That COVID-19 driven shutdown, multiplied many times over in fashion and across the economy, is a threat to the economy and the consumer.
University of Michigan Surveys of Consumers chief economist Richard Curtin said consumer sentiment plunged 18.1 points to 71 in early April, the largest monthly decline ever recorded. The current conditions index — half of the overall reading of sentiment — was down 31.3 points while the expectations index was down just 9.7 points.
“This suggests that the free-fall in confidence would have been worse were it not for the expectation that the infection and death rates from COVID-19 would soon peak and allow the economy to restart,” Curtin said.
However, he said, “Anticipating a quick and sustained economic expansion is likely to be a failed expectation, resulting in a renewed and deeper slump in confidence…. Consumers need to be prepared for a longer and deeper recession rather than the now discredited message that pent-up demand will spark a quick, robust and sustained economic recovery.”
The COVID-19 Stock Market
|Wall Street hit its all-time high on Feb. 12, but COVID-19 forced a fast retrenchment, even with some up days, including a 285.80-point jump in the Dow Jones Industrial Average on Thursday. Here’s how much key players have fared since the high.|
|Price||Change Since Feb. 12|
|Hermès International||€ 641.80||-9.3%|
|LVMH Moët Hennessy Louis Vuitton||€ 347.40||-18.2%|
|Dow Jones Industrial Average||23,719.37||-19.7%|
|Lululemon Athletica Inc.||$203.51||-19.9%|
|Estée Lauder Cos. Inc.||$164.83||-23.1%|
|Ralph Lauren Corp.||$80.41||-34.3%|
|Under Armour Inc.||$9.35||-39.5%|
|Simon Property Group Inc.||$68.17||-50.3%|
|J.C. Penney Co. Inc.||$0.34||-54.1%|
|Source: Google Finance|