Washington, DC
CNN
—
Expenditure at U.S. retailers decreased in March as shoppers scaled back following the banking crisis that heightened recession worries.
Retail sales, adjusted for seasonal variations but not for inflation, dropped by 1% in March compared to the previous month, as reported by the Commerce Department on Friday. This decline surpassed the anticipated 0.4% drop per Refinitiv, and was higher than the revised 0.2% decrease the previous month.
Investors attribute some of the decline to a shortage of tax refunds and worries regarding a deteriorating labor market. According to BofA analysts, the IRS disbursed $84 billion in tax refunds this March, approximately $25 billion less than the refunds issued in March 2022.
Consequently, consumers curtailed their expenditure at department stores and on durable goods like appliances and furniture. Expenditure at general merchandise stores fell by 3% in March from the previous month, while spending at gas stations fell by 5.5% during that same timeframe. Excluding gas station sales, retail expenditure dropped 0.6% in March compared to February.
Nonetheless, retail spending increased by 2.9% year-over-year.
The impact of reduced tax refunds
Decreased tax refunds likely contributed to last month’s dip in retail sales, alongside the cessation of enhanced food assistance benefits, according to economists.
“March is a crucial month for refunds. Some individuals may have anticipated amounts similar to the previous year,” Aditya Bhave, senior U.S. economist at BofA Global Research, informed CNN.
Spending on credit and debit cards per household monitored by Bank of America researchers slowed in March to its lowest rate in over two years, likely due to reduced refunds and expired benefits, coupled with lagging wage growth.
Enhanced benefits from the pandemic supplied through the Supplemental Nutrition Assistance Program lapsed in February, potentially impacting spending in March, as per a report from the Bank of America Institute.
A weakening labor market
Average hourly wages increased by 4.2% in March compared to one year prior, down from the previous month’s annualized 4.6% rise and marking the smallest annual increase since June 2021, according to data from the Bureau of Labor Statistics. The Employment Cost Index, a broader measure of wage growth, also indicates that salary gains have slowed over the past year. ECI figures for the first quarter of this year will be published later this month.
Nevertheless, the U.S. labor market remains robust, although it has experienced a recent loss of momentum. This stability may support consumer spending in the upcoming months, stated Michelle Meyer, North America chief economist at Mastercard Economics Institute.
“The overall outlook remains positive for consumers when considering their income growth, financial stability, and the strength of the labor market,” Meyer remarked.
Employers added 236,000 positions in March, a substantial increase by historical standards, yet below the average monthly job growth rate observed in the previous six months, as reported by the Bureau of Labor Statistics. The most recent Job Openings and Labor Turnover Survey, or JOLTS report, indicates that job availability remained high in February—but decreased by over 17% from its peak of 12 million in March 2022, while adjusted data revealed that weekly claims for U.S. unemployment benefits were higher than initially noted.
The job market may further decelerate in the coming months. Federal Reserve economists anticipate that the U.S. economy will enter a recession later this year as the delayed impacts of increased interest rates become more pronounced. Fed economist projections had predicted modest growth, with recession risks before the collapses of Silicon Valley Bank and Signature Bank.
For consumers, the repercussions from last month’s upheaval in the banking sector have thus far been minimal. Consumer sentiment tracked by the University of Michigan declined slightly in March amid the banking failures, though it had already begun to show signs of weakening prior to that.
The latest consumer sentiment assessment, published Friday morning, revealed that sentiment remained stable in April despite the banking crisis, though rising fuel prices spurred year-ahead inflation expectations to rise by a full percentage point, climbing from 3.6% in March to 4.6% in April.
“Overall, consumers did not note significant changes in the economic landscape in April,” stated Joanne Hsu, director of consumer surveys at the University of Michigan, in a news release.
“Consumers anticipate a downturn; they are not feeling as bleak as they did last summer, but they are bracing for further developments,” Hsu told Bloomberg TV in an interview Friday morning.
This report has been revised to include additional context and details.
