Retail spending fell in March as consumers pulled back

Washington D.C.
CNN
—

US retail spending fell in March as consumers pulled back after the banking crisis fueled 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 an expected decline of 0.4%, according to Refinitiv, and higher than the revised decline of 0.2% in the prior month.

Investors attribute some of the weakness to a lack of tax returns and worries about a slowdown in the job 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.

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

However, retail spending was up 2.9% year-over-year.

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

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

Household credit and debit card spending tracked by Bank of America researchers eased in March at its slowest pace in more than two years, likely the result of lower yields and past-due benefits, coupled with a slowdown in salary growth.

Enhanced pandemic-era benefits provided through the Supplemental Nutrition Assistance Program expired in February, which also may have slowed spending in March, according to a Bank of America Institute report.

Average hourly earnings grew 4.2% in March from a year earlier, down from the previous month’s 4.6% annualized increase and the smallest annual increase since June 2021, according to figures from the Bureau of Labor Statistics. . The employment cost index, a more comprehensive measure of wages, has also shown that workers’ wage gains have moderated in the past year. ECI data for the first quarter of this year will be released later this month.

Still, the US job market remains strong, even though it has lost momentum recently. That could hold back consumer spending in the coming months, said Michelle Meyer, chief North America economist at the Mastercard Economics Institute.

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

Employers added 236,000 jobs in March, a solid gain by historical standards but less than the average monthly pace of job growth in the previous six months, according to the Bureau of Labor Statistics. The latest Monthly Job Vacancy and Job Turnover Survey, or JOLTS report, showed that the number of available jobs remained elevated in February, but declined more than 17% from its peak of 12 million in March 2022, and revised data ​​showed that weekly claims for US unemployment benefits were higher than previously reported.

The job market could cool down further 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 take more hold. Fed economists had forecast subdued growth, with risks of recession, before the collapses of Silicon Valley Bank and Signature Bank.

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

The latest consumer confidence reading, released on Friday morning, showed confidence held steady in April despite the banking crisis, but higher gasoline prices helped raise inflation expectations for the year. coming by a full percentage point, from 3.6% in March to 4.6%. in April.

“On the web, consumers did not perceive material changes in the economic environment in April,” said Joanne Hsu, director of consumer surveys at the University of Michigan, in a news release.

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

This story has been updated with context and more details.