Spending at US retailers fell in March as consumers retreated after the banking crisis stoked recession fears.
Retail sales, which are adjusted for seasonality but not for inflation, fell 1% in March from the previous month, the Commerce Department reported Friday. That was higher than an expected 0.4% decline, according to Refinitiv, and above the revised 0.2% decline last month.
Investors chalked up some of the weakness to a lack of tax returns and concerns about a sluggish labor market. The IRS issued $84 billion in tax refunds this March, about $25 billion less than they issued in March of 2022, according to BofA analysts.
That has caused consumers to pull back on 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% over the same period. Excluding gas station sales, retail spending retreated 0.6% in March from February.
However, retail spending rose 2.9% year-on-year.
Smaller tax returns likely played a role in last month’s decline in retail sales, along with the expiration of enhanced food assistance benefits, economists said.
“March is an 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 moderated in March to the slowest pace in more than two years, likely the result of smaller returns and expired benefits, combined with of slow wage growth.
The pandemic-enhanced benefits provided through the Supplemental Nutrition Assistance Program expired in February, which may have also curbed spending in March, according to a report by the Bank of America Institute.
Average hourly earnings grew 4.2% in March from a year earlier, down from the previous month’s 4.6% annual 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, also showed that wage gains for workers moderated this past year. ECI data for the first quarter of this year will be released later this month.
However, the US labor market remains strong, although it has lost strength recently. That will hold back consumer spending in the coming months, said Michelle Meyer, chief North American economist at the Mastercard Economics Institute.
“The big picture is still favorable for consumers 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 strong gain by historical standards but smaller than the average monthly pace of job growth over the past six months, according to the Bureau of Labor Statistics. The latest monthly Job Openings and Labor Turnover Survey, or JOLTS report, shows 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 shows that the weekly claim. for unemployment benefits in the US is higher than previously reported.
The job market may cool further in the coming months. Economists at the Federal Reserve expect the US economy to head into a recession later in the year as the lagged effects of higher interest rates deepen. Fed economists had predicted lower growth, with risks of a recession, before the collapse of Silicon Valley Bank and Signature Bank.
For consumers, the impact of last month’s turmoil in the banking industry has been limited so far. Consumer sentiment tracked by the University of Michigan edged up slightly in March during the bank failures, but it had shown signs of deterioration before then.
The latest reading of consumer sentiment, released Friday morning, showed sentiment remained steady in April despite the banking crisis, but higher gas prices helped push expectations down. Inflation advanced by a full percentage point, rising from 3.6% in March to 4.6% in April.
“On net, consumers did not notice 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 downturn, 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 on Friday at morning.
This story has been updated with context and additional details.