Spending by US retailers fell in March as consumers retreated after the banking crisis fueled recession fears.
Retail sales, which are seasonally adjusted but not inflation-adjusted, fell 1% in March from a month earlier, the Commerce Department reported Friday. That was more pronounced than the expected 0.4% decline, according to Refinitiv, and larger than the revised 0.2% drop from the previous month.
Investors attribute some of the weakness to a lack of tax filings and worries about a slowing labor market. The IRS issued $84 billion in tax refunds last March, about $25 billion less than in March 2022, according to BofA analysts.
This has led consumers to reduce their spending in department stores and in 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 grew 2.9% year-over-year.
Economists say lower tax returns likely played a role in last month’s drop in retail sales, as well as the expiration of improved food aid.
“March is a really big month for refunds. Some people might have expected something similar to last year,” Aditya Bhave, senior US economist at BofA Global Research, told CNN.
Spending on credit and debit cards per household tracked by Bank of America researchers slowed in March to its slowest pace in more than two years, which was likely the result of weaker yields and perks expired benefits, associated with a slowdown in wage growth.
Pandemic-enhanced benefits provided by the Supplemental Nutrition Assistance Program expired in February, which could have also dampened spending in March, according to a report by the Bank of America Institute.
Average hourly earnings rose 4.2% in March from a year earlier, down from the 4.6% annualized increase the previous month and the lowest annual increase since June 2021, according to figures from the Bureau of Labor Statistics. The Employment Cost Index, a more comprehensive measure of wages, also showed workers’ wage gains moderated last year. CIS data for the first quarter of this year will be released later this month.
However, the US labor market remains strong, although it has recently lost momentum. 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 remains favorable to the consumer when you think about their income growth, their balance sheet and the health of the labor market,” Meyer said.
Employers added 236,000 jobs in March, a robust gain by historical standards but below the average monthly pace of job growth over the previous six months, according to the Bureau of Labor Statistics. The latest Monthly Job Vacancies and Labor Turnover Survey, or JOLTS report, showed the number of job vacancies remained high in February – but was down more than 17% from from its peak of 12 million in March 2022, and revised data showed that weekly claims for unemployment benefits in the United States were higher than previously reported.
The labor market could slow further in the coming months. Economists at the Federal Reserve expect the U.S. economy to slip into recession later in the year as the lagged effects of rising interest rates become more pronounced. Fed economists predicted moderate growth, with risks of recession, before the collapses of Silicon Valley Bank and Signature Bank.
For consumers, the effects of last month’s turmoil in the banking sector have been limited so far. Consumer confidence, tracked by the University of Michigan, deteriorated slightly in March during the bank failures, but it had already shown signs of deterioration before.
The latest consumer confidence figure, released on Friday morning, showed confidence held steady in April despite the banking crisis, but rising petrol prices helped raise inflation expectations for the year ahead by one percentage point, from 3.6% in March to 4.6%. in April.
“On the net, consumers did not perceive any significant 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 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.