Washington D.C.
cnn
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Spending at U.S. retailers fell in March as consumers retreated after the banking crisis stoked recession fears.
Retail sales, which are adjusted for seasonality but not inflation, fell 1% in March from the previous month, the Commerce Department reported Friday. This was steeper than the expected 0.4% drop, according to Refinitiv, and above the revised 0.2% drop the previous month.
Investors attribute some of the weakness to a lack of tax filings and concerns about a slowdown in the labor market. The IRS issued $84 billion in tax refunds in March, about $25 billion less than what they issued in March 2022, according to BofA analysts.
That 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% during the same period. Excluding gas station sales, retail spending fell 0.6% in March compared to February.
However, retail spending increased 2.9% year over year.
Smaller 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 important 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 moderated in March to its slowest pace in more than two years, which was likely the result of lower yields and expired benefits, along with a slowdown. of wage growth.
Enhanced pandemic-era benefits provided through the Supplemental Nutrition Assistance Program expired in February, which also could have curbed spending in March, according to a Bank of America Institute report.
Average hourly wages 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' pay increases have moderated in the past year. ICE data for the first quarter of this year will be published later this month.
Still, the US labor market remains strong, although it has lost momentum recently. That could dampen consumer spending in the coming months, said Michelle Meyer, chief North American economist at the Mastercard Economics Institute.
“The overall picture remains favorable for the consumer when you think about their income growth, their bottom line and the health of the labor market,” Meyer said.
Employers added 236,000 jobs in March, a solid increase 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 report, showed that the number of available jobs remained high in February, but fell more than 17% from its peak of 12 million in March 2022, and the Revised data showed that weekly claims for unemployment benefits in the United States 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 a recession later this year as the lagged effects of higher interest rates take deeper hold. Federal Reserve economists had forecast moderate 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 sector have been limited so far. Consumer confidence, analyzed by the University of Michigan, worsened slightly in March during the bank failures, but had already shown signs of deterioration before.
The latest consumer confidence reading, released on Friday morning, showed that confidence remained stable in April despite the banking crisis, but that higher gasoline prices helped raise inflation expectations for the year next by a full percentage point, going from 3.6% in March to 4.6%. in April.
“On net, consumers saw no material changes 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 slowdown, they're not feeling as gloomy as they were last summer, but they're waiting for the other shoe to pass,” Hsu told Bloomberg TV in an interview Friday morning.
This story has been updated with context and more details.
