NYS business activity collapses in April, as retail sales, production drop in March
Business activity in New York State plunged to the lowest level ever recorded, according to firms responding to the New York Federal Reserve’s Empire State Manufacturing Survey for April.
The general business conditions index plummeted 57 points to negative 78.2, as the impact of the COVID-19 virus took its toll on firms around the state, the New York Fed said Wednesday.
Previously, the lowest level this indicator had fallen to was negative 34.3, reached during the Great Recession.
Economists surveyed by IFR Markets had expected a reading of negative 35.0.
New orders and shipments declined at a record pace in April while delivery times lengthened and inventories fell.
Labor market indicators were very weak. Employment levels and the average workweek contracted at a record pace. The index for number of employees fell 54 points to negative 55.3, with almost 60% of the respondents indicating lower employment levels.
The average workweek index fell to negative 61.6, with 65% of companies reporting shorter workweeks.
Firms expected only a small improvement in business conditions over the next six months. The index for future business conditions inched up six points to 7.0 in April.
The indexes for future new orders and future shipments declined, but remained positive, suggesting that firms expect orders and shipments to be a bit higher six months from now.
Meanwhile, the Commerce Department reported that retail sales fell 8.7% in March to $483.1 billion. That was down 6.2% from the same period a year ago.
Economists polled by IFR Markets had expected sales to have declined by 7.0% last month.
Total sales for January through March were up 1.1% from 2019.
Eight sectors saw declines, led by clothing stores (down 50.5%), furniture stores (down 26.8%), restaurants (down 26.5%) and motor vehicles (down 25.6%). Grocery store sales, however, rose 25.6% as buyers stocked up on food.
“The control group – which strips out food, auto dealers, building materials stores and gasoline stations — managed to increase 1.7% primarily on rising sales at grocery stores and general merchandise stores,” said Scott Anderson, chief economist at Bank of the West. “The control group is normally considered a reliable gauge of underlying consumer demand, but in this case it was more related to purchases of essential goods as the coronavirus continued to spread.”
Some said the data highlighted how state budgets will be stressed because of the pandemic.
“The sharp drop in retail spending we saw this morning poses significant challenges for state budgets,” said Mark Robyn, senior officer for state fiscal health at the Pew Charitable Trusts. “General sales taxes raise nearly a third of all state tax revenues nationally, and are the largest tax revenue source in 15 of the 45 states that collect them. They are particularly crucial for six states where they accounted for more than half of all tax collections (as of fiscal 2018): Florida, Nevada, South Dakota, Tennessee, Texas, and Washington.”
Retail trade sales were down 6.2% from February 2020 and down 3.8% from March 2019.
“Historically, sales taxes have provided a relatively stable source of tax revenue for states, helping to smooth out the ups and downs from taxing more volatile economic activity such as capital gains, corporate income, or oil extraction," Robyn said. "For the last two decades, they have been a more stable source of revenue than personal or corporate income, severance and property taxes in all but four states where they are levied. Today’s drop in retail spending illustrates one more way the pandemic poses a new challenge for state leaders attempting to stabilize their budgets.”
Also Wednesday, the Federal Reserve reported that industrial production declined 5.4% in March, the largest decline since January 1946.
Economists surveyed by IFR Markets had expected a 4.2% decrease last month.
“As the COVID-19 pandemic led many manufacturing firms to cease operations … declines were broad-based with manufacturing output contracting 6.3%, utilities output sinking 3.9% and mining output falling 2.0%,” Anderson said. “Industrial production is down 5.5% from a year earlier. Capacity utilization fell to 72.7% and is 7.1 percentage points below its long-run average from 1972-2019.”