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<span class="source__location" data-editable="location">Washington, DC</span>
<span class="source__text" data-editable="source">CNN</span>
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A decrease in spending at US retailers was witnessed in March, as consumers retracted following concerns spurred by the banking crisis and recession fears.
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According to the Commerce Department's report on Friday, retail sales, which are adjusted for seasonal changes but not inflation, dropped by 1% in March compared to the previous month. This decline was sharper than the expected 0.4% decrease forecasted by Refinitiv, and higher than the revised 0.2% decline in the previous month.
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Some of the weakness in consumer spending is attributed to a decrease in tax returns and concerns about a slowing job market. In March, the IRS issued $84 billion in tax refunds, which was $25 billion less than the amount issued in March 2022, according to BofA analysts.
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This led consumers to cut back on spending at department stores and on durable goods such as appliances and furniture. Spending at general merchandise stores dropped by 3% in March compared to the previous month, while spending at gas stations saw a decline of 5.5% during the same period. Excluding gas station sales, retail spending fell by 0.6% in March from February.
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Nonetheless, retail spending showed an increase of 2.9% year-over-year.
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The reduction in tax returns likely played a part in the decline in retail sales last month, along with the expiration of enhanced food assistance benefits, as indicated by economists.
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Aditya Bhave, senior US economist at BofA Global Research, mentioned to CNN, “March is a really important month for refunds. Some folks might have been expecting something similar to last year.”
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Tracking of credit and debit card spending per household by Bank of America researchers slowed down in March to its lowest pace in more than two years, likely influenced by reduced returns, expired benefits, and slowing wage growth.
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The expiration of enhanced benefits from the pandemic era provided through the Supplemental Nutrition Assistance Program in February could also have contributed to the decrease in spending in March, according to a Bank of America Institute report.
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Average hourly earnings increased by 4.2% in March compared to a year earlier, showing a decrease from the 4.6% rise in the previous month and marking the smallest yearly increase since June 2021. Data from the Bureau of Labor Statistics also indicates a moderation in worker pay gains over the past year, with the Employment Cost Index revealing a slower pace of wage growth. ECI data for the first quarter of this year will be released later in this month.
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Despite recent loss of momentum, the US labor market remains stable, which could support consumer spending in the upcoming months, as stated by Michelle Meyer, North America chief economist at Mastercard Economics Institute.
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Meyer further added, “When considering income growth, balance sheet, and labor market health, the overall outlook for consumers remains positive.”
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In March, employers added 236,000 jobs, a substantial increase compared to historical standards, although slightly lower than the average monthly job growth in the preceding six months, according to the Bureau of Labor Statistics. The most recent monthly Job Openings and Labor Turnover Survey (JOLTS) revealed a sustained high number of job vacancies in February, although it was down over 17% from its peak of 12 million in March 2022. Additionally, revised data indicated higher weekly claims for US unemployment benefits than previously reported.
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There is speculation that the job market may cool down in the forthcoming months. The Federal Reserve economists anticipate a potential recession for the US economy later in the year due to the delayed impacts of rising interest rates. Prior to the collapses of Silicon Valley Bank and Signature Bank, Fed economists had already predicted subdued growth with risks of a recession.
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FAQs
1. Why did retail spending decline in March?
Retail spending declined in March due to concerns arising from the banking crisis and recession fears, as consumers pulled back on spending activities.
2. What factors contributed to the decrease in retail sales?
Factors contributing to the decline in retail sales included a decrease in tax returns, worries about a slowing labor market, reduced consumer spending on durable goods, and expired benefits such as enhanced food assistance programs.
3. How did the job market perform in March?
In March, employers added 236,000 jobs, showing an increase compared to historical standards but slightly lower than the average monthly job growth in the six months prior. However, there are indications that the job market may weaken in the coming months.
Frequently Asked Questions (FAQ)
1. How did the recent turbulence in the banking industry affect consumer sentiment?
The effects of last month’s banking industry turbulence on consumer sentiment have been relatively limited so far. Although there was a slight worsening in consumer sentiment in March during the bank failures, it was already showing signs of deterioration before then.
2. What was the consumer sentiment reading for April despite the banking crisis?
Despite the banking crisis, the latest consumer sentiment reading for April showed that sentiment remained steady. However, higher gas prices contributed to a rise in year-ahead inflation expectations by a full percentage point, increasing from 3.6% in March to 4.6% in April.
3. What did Joanne Hsu, director of the surveys of consumers at the University of Michigan, say about consumer perception in April?
According to Joanne Hsu, consumers did not perceive significant changes in the economic environment in April. She mentioned that consumers are anticipating a downturn but are not as pessimistic as they were last summer, indicating that they are cautiously waiting for potential changes.
4. How are consumers feeling about the current economic situation?
Consumers are apprehensive about the future economic outlook and are prepared for a potential downturn. Despite not feeling as bleak as they did in the past, consumers are concerned and are keeping a close watch on the unfolding situation, expecting uncertainties.
