Margins Plunge in Coronavirus and Black Lives Matter Retail Crunch

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The intense pressure felt by many retailers in June even as the economy has reopened could be seen in the Labor Department’s price data released Friday.

The Producer Price Index’s gauge of margins for the broad category of apparel, jewelry, footwear, and accessories retailing fell 7.1 percent in June. That is extraordinary because many economists expected a rush of demand for goods from consumers who had spent weeks isolated in their homes.

Overall prices fell two-tenths of a percent. Excluding volatile food and energy prices, the deflationary pressures were even stronger, pushing prices down three-tenths of a percentage point.

The prices of many goods were flat, with the index for so-called “final demand” consumer goods excluding food and energy rising just one-tenth of a percentage point.

The Producer Price Index measures prices received by businesses at various stages of production. The “final demand” measures prices of goods sold to their end-users or consumers, most closely aligned with the more well-known Consumer Price Index.

But it is in the category of “trade services” where the biggest squeeze shows up. This is a measure of margins or mark-ups—the difference between the cost of goods purchased by merchants and those sold to customers—rather than prices.

The index for final demand trade services fell 1.8 percent in June. The Department of Labor said 80 percent of that can be traced to a 7.3-percent drop in margins for machinery and vehicle wholesaling.

TV, video, and photographic equipment and supplies retailing mark-ups fell 6 percent. Dental care mark-ups fell 3.7 percent.

Wine and liquor store mark-ups fell 1 percent.

Although the economy was reopening in June, many areas experienced rising infections as well as marches, looting, and riots that disrupted business activity.

 

 

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