Retail spending fell in March as consumers retreated

Washington, DC —

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

Retail sales, seasonally adjusted but not inflation-adjusted, fell 1% in March compared with the previous month, the Commerce Department reported on Friday. The figure was steeper than a forecast decline of 0.4%, according to Refinitiv, and above a revised decline of 0.2% in the previous month.

Investors said this weakness was caused by a lack of tax reports and concerns about a slowing labor market. The IRS issued $84 billion in tax refunds this March, about $25 billion less than they issued in March 2022, according to BofA analysts.

This has caused consumers to withdraw their spending in department stores and on durable goods, such as equipment and furniture. Spending at general merchandise stores fell 3% in March compared with the previous month and spending at gas stations fell 5.5% in the same period. Excluding gas station sales, retail spending fell 0.6% in March from February.

However, retail spending rose 2.9% year over year.

Smaller tax refunds likely played a role in last month’s drop in retail sales, along with the end of increased food aid benefits, economists said.

“March was a very important month for returns. Some people may 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 slowed in March to the slowest rate in more than two years, likely due to smaller returns and expiring benefits, coupled with slowing wage growth.

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

Average hourly earnings grew 4.2% in March compared with a year earlier, down from a 4.6% annual increase in the previous month and the smallest annual increase since June 2021, according to figures from the Bureau of Labor Statistics. The Employment Cost Index, which is a more comprehensive measure of wages, also shows that increases in workers’ wages have slowed in the past year. ECI data for the first quarter of this year will be released later this month.

Even so, the US labor market remains solid, although it has recently lost momentum. This could hamper consumer spending in the coming months, said Michelle Meyer, chief North American economist at the Mastercard Economics Institute.

“The big picture still favors consumers when you think about their income growth, their balance sheets and the health of the labor market,” Meyer said.

Employers added 236,000 jobs in March, a strong increase by historical standards but smaller than the average monthly pace of job growth in the previous six months, according to the Bureau of Labor Statistics. The latest monthly Job Openings and Labor Turnover Survey, or JOLTS report, showed that the number of available jobs remained elevated in February – but fell 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 may cool further in the coming months. Economists at the Federal Reserve predict the US economy will head into recession by the end of this year as the impact of rising interest rates deepens. Fed economists had expected growth to be weak, with the risk of recession, before the collapse of Silicon Valley Bank and Signature Bank.

For consumers, so far the impact of the turmoil that occurred in the banking industry last month is still limited. Consumer sentiment tracked by the University of Michigan worsened slightly in March due to bank failures, but was already showing signs of worsening before that.

The latest consumer sentiment reading, released on Friday morning, showed that sentiment remained stable in April despite the banking crisis, but higher fuel prices helped raise inflation expectations next year by one percentage point, rising from 3.6% in March to 4.6% in April.

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

“Consumers are expecting a downturn, they don’t feel as gloomy as last summer, but they are waiting for other conditions to fall,” Hsu told Bloomberg TV in an interview Friday morning.

This story has been updated with more context and details.