Retail spending fell in March as consumers retreat

Washington DC

Spending at US retailers fell in March as consumers retreated after the banking crisis fueled recession fears.

Retail sales, which are adjusted for seasonality but not inflation, fell 1 percent in March from a month earlier, the Commerce Department reported Friday. That was steeper than an expected 0.4 percent decline, according to Refinitiv, and above the revised 0.2 percent decline from the previous month.

Investors point to some of the weakness in the lack of tax filings and concerns about a slowing labor market. The IRS issued $84 billion in tax refunds in March, about $25 billion less than it issued in March 2022, according to BofA analysts.

This led consumers to pull back on spending in department stores and on durables such as appliances and furniture. Spending at general merchandise stores fell 3 percent in March from the previous month, and spending at gas stations fell 5.5 percent over the same period. Excluding gas station sales, retail spending retreated 0.6% in March from February.

However, retail spending rose 2.9% year-on-year.

Lower tax returns likely played a role in last month’s drop in retail sales, along with the expiration of enhanced food assistance benefits, economists say.

“March is a really big month for refunds. Some people would have expected something similar to last year,” Aditya Bhave, senior US economist at BofA Global Research, told CNN.

Credit and debit card spending per household tracked by Bank of America researchers moderated in March to the slowest pace in two years, which was likely the result of lower profits and expired benefits along with slower growth salaries.

Pandemic-era enhanced benefits through the Supplemental Nutrition Assistance Program expired in February, which could have hampered spending in March, according to a report from the Bank of America Institute.

Average hourly earnings rose 4.2 percent in March from a year earlier, down from the previous month’s 4.6 percent annual increase and the slowest annual increase since June 2021, according to Bureau of Labor Statistics figures. The labor cost index, a more comprehensive measure of wages, also showed that workers’ earnings moderated over the past year. ECI data for the first quarter of this year will be published later this month.

Still, the US labor market remains solid, even if it has recently lost steam. That could keep consumer spending under control in the coming months, said Michelle Meyer, chief economist for North America at the Mastercard Economics Institute.

“The overall picture is still favorable for the consumer when you think about their income growth, their balance sheet and the health of the labor market,” Meyer said.

Employers added 236,000 jobs in March, a robust gain by historical standards but slower than the average monthly pace of job growth over the past six months, according to the Bureau of Labor Statistics. The latest monthly survey of job openings and labor turnover, or JOLTS report, showed that the number of job openings remained strong in February — but fell more than 17 percent from a peak of 12 million in March 2022, and revised data showed weekly claims for US jobless benefits were higher than previously reported.

The labor market could cool even more in the coming months. Federal Reserve Economists expect the US economy to enter a recession later in the year as the lagged effects of higher interest rates have a deeper influence. Fed economists had forecast subdued growth with recession risks before the collapse of Silicon Valley Bank and Signature Bank.

For consumers, the effects of last month’s turmoil in the banking industry have so far been limited. Consumer sentiment tracked by the University of Michigan worsened slightly in March during the bank failures, but had already shown signs of deterioration by then.

The latest survey of consumer sentiment, released Friday morning, showed that sentiment held steady in April despite the banking crisis, but that higher gas prices helped boost inflation expectations for the year ahead by a full percentage point, rising from 3.6% in March to 4.6% in April.

“Online, consumers did not perceive significant changes in the economic environment in April,” Joanne Hsu, director of consumer research at the University of Michigan, said in a news release.

“Consumers are expecting a decline, they’re not feeling as sad as last summer, but they’re waiting for the other shoe to drop,” Hsu told Bloomberg TV in an interview Friday morning.

This story has been updated with context and more details.

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