Retail spending declined in March as consumers held back

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Spending by US retailers fell in March as consumers held back on fears of a recession following the banking crisis.

The Commerce Department reported Friday that retail sales, which are adjusted for seasonality but not inflation, declined 1% in March from the previous month. That was a sharper than expected 0.4% decline, according to Refinitiv, and more than a revised 0.2% decline in the previous month.

Investors attributed some of their weakness to concerns about the lack of tax returns and a slowing labor market. According to BofA analysts, the IRS issued $84 billion in tax refunds this March, which is about $25 billion less than the tax refunds issued in March of 2022.

This caused consumers to shy away from spending at department stores and on durable goods, such as appliances and furniture. Spending at general merchandise stores declined 3% in March compared to the previous month and spending at gas stations declined 5.5% during the same period. Excluding gas station sales, retail spending in March declined 0.6% from February.

However, retail spending increased 2.9% year-on-year.

Economists say smaller tax returns played a role in the decline in retail sales last month as well as the expiration of enhanced food assistance benefits.

“March is a really important month for refunds. Some people may be expecting 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 fell to the slowest pace in more than two years in March, likely a result of lower returns and eliminated benefits as well as slower wage growth.

Enhanced pandemic-era benefits provided through the Supplemental Nutrition Assistance Program expired in February, which may have also curbed spending in March, the Bank of America Institute reports.

Average hourly earnings rose 4.2% in March from a year earlier, less than the previous month’s annual 4.6% increase and the smallest annual increase since June 2021, according to Bureau of Labor Statistics data. The Employment Cost Index, a more comprehensive measure of wages, also showed that worker wage gains declined last year. ECI data for the first quarter of this year will be released later this month.

Still, the US labor market remains solid, even if it has lost momentum recently. That could hold back consumer spending in the coming months, said Michelle Meyer, chief economist for North America at the MasterCard Economics Institute.

“The big picture is still favorable for consumers when you think about consumers’ income growth, their balance sheets and the health of the labor market,” Mayer said.

According to the Bureau of Labor Statistics, employers added 236,000 jobs in March, a strong gain by historical standards but slower than the average monthly pace of job growth over the past six months. The latest monthly Job Openings and Labor Turnover Survey, or JOLTS report, showed that the number of available jobs continued to rise in February — but was down more than 17% from its peak of 12 million in March 2022, and the revised data showed That weekly claims for US unemployment benefits were higher than ever before.

The job market may cool further in the coming months. Federal Reserve economists expect the US economy to slip into recession by the end of the year as the impact of higher interest rates deepens. Before the collapse of Silicon Valley Bank and Signature Bank, Fed economists had forecast slower growth with risks of a recession.

For consumers, the impact of last month’s turmoil in the banking industry has so far been limited. Consumer sentiment, tracked by the University of Michigan, deteriorated slightly during the bank failures in March, but had already shown signs of declining.

The latest consumer sentiment readings released Friday morning showed that sentiment remained steady in April despite the banking crisis, but higher gas prices helped raise expectations for year-long inflation by a full percentage point, from 3.6% in March. It increased to 4.6%. In April.

“On net, consumers did not perceive any significant change in the economic environment in April,” Joan Hsu, director of consumer surveys at the University of Michigan, said in a news release.

“Consumers are expecting a recession, they’re not feeling as depressed 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 references and more details.