Retail spending fell in March as consumers retreated

Washington DC
CNN
—

Spending at U.S. retailers fell in March as consumers slowed their shopping after the banking crisis stoked recession fears.

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

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

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

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

Economists say last month’s decline in retail sales was likely due to lower tax revenues, coupled with the expiration of enhanced food subsidies.

“March is a really big month for refunds. Some might expect something similar to last year,” Aditya Bhave, senior U.S. economist at BofA Global Research, told CNN.

Household spending on credit and debit cards, tracked by researchers at Bank of America, slowed in March to its slowest pace in two years, likely due to lower yields and expired benefits, as well as slower wage growth.

According to a Bank of America Institute report, pandemic-era enhanced benefits through the Supplemental Nutrition Assistance Program expired in February, which may have dampened spending in March.

Average hourly earnings rose 4.2% in March from a year earlier, down from a 4.6% annualized gain the month before and the smallest annual gain since June 2021, according to data from the Bureau of Labor Statistics. The Employment Cost Index, a more comprehensive measure of wages, also showed that workers’ wage increases moderated last year. ECI data for the first quarter of this year will be released later this month.

Still, the U.S. labor market remains solid, even if it has lost momentum recently. That could dampen consumer spending in the coming months, said Michelle Meyer, chief economist for North America at the Mastercard Economics Institute.

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

Employers added 236,000 jobs in March, a solid gain by historical standards but slower than the average monthly pace of job growth over the previous six months, according to the Bureau of Labor Statistics. The latest monthly Job Openings and Labor Turnover Survey, or JOLTS, showed that the number of job openings remained elevated in February but was down more than 17% from a peak of 12 million in March 2022, and revised data showed that weekly U.S. jobless claims were higher than previously reported.

The labor market could cool further in the coming months. Federal Reserve economists expect the U.S. economy to enter recession later in the year as the lagged effects of higher interest rates become more entrenched. Fed economists had been forecasting weak growth, with recession risks, before the collapses of Silicon Valley Bank and Signature Bank.

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

The latest consumer sentiment survey, released Friday morning, showed that sentiment remained stable in April despite the banking crisis, but that higher gasoline prices helped lift inflation expectations for next year by a full percentage point, from 3.6% in March to 4.6% in April.

“Overall, consumers did not perceive any substantial changes in the economic environment in April,” Joanne Hsu, director of consumer surveys at the University of Michigan, said in a press release.

“Consumers are expecting a downturn, they’re not feeling as sad as they did 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.