Key Findings: March Retail Sales

• Retail sales fell by 1% in March, adjusted for seasonality but not inflation.
• This decline surpassed expectations of a 0.4% decrease, according to Refinitiv.
• The previous month’s decline was revised to 0.2%.
• Though, retail spending saw a 2.9% increase year-over-year.

Factors Contributing to the Decline

Several factors appear to have influenced the decrease in retail spending. Analysts point to smaller tax refunds and concerns about a potentially weakening labor market as primary drivers.

• The IRS issued $84 billion in tax refunds this March, approximately $25 billion less than in March 2022, according to BofA analysts.
• Expiration of enhanced food assistance benefits also played a role, economists suggest.

Spending Patterns: Where Consumers Pulled Back

The decline in retail sales was evident across various sectors, with consumers reducing spending on specific categories.

• Spending at general merchandise stores decreased by 3%.
• Gas station spending fell by 5.5%.
• Excluding gas station sales, retail spending decreased by 0.6%.
• Durable goods, such as appliances and furniture, also saw reduced spending.

Expert Insights and Analysis

Experts weigh in on the implications of the latest retail sales data and the broader economic outlook.

Aditya Bhave, senior U.S. economist at BofA Global Research, noted the importance of tax refunds in March, stating, Some folks might have been expecting something similar to last year.

Bank of America researchers observed that credit and debit card spending per household moderated in March to its slowest pace in over two years, likely due to smaller tax returns, expired benefits, and slowing wage growth.

Michelle Meyer, North America chief economist at Mastercard Economics Institute, believes the labor market’s strength could support consumer spending in the coming months. The big picture is still favorable for the consumer when you think about their income growth, their balance sheet and the health of the labor market, Meyer said.

Labor Market Dynamics

While the labor market remains relatively strong, there are signs of a potential slowdown.

• Employers added 236,000 jobs in March, a solid gain but less than the average monthly pace in the prior six months.
• The Job Openings and Labor Turnover Survey (JOLTS) report indicated that available jobs remained elevated in February but were down more than 17% from their peak in March 2022.
• Revised data showed higher weekly claims for U.S. unemployment benefits than previously reported.

Recession Concerns and Consumer Sentiment

The Federal Reserve’s economists anticipate a potential recession later in the year due to the lagged effects of higher interest rates. This outlook has implications for consumer sentiment and spending behavior.

Consumer sentiment, as tracked by the University of Michigan, worsened slightly in March during the bank failures but had already shown signs of deterioration beforehand.

The latest consumer sentiment reading in April showed that sentiment held steady despite the banking crisis. Though, higher gas prices contributed to a full percentage point increase in year-ahead inflation expectations, rising from 3.6% in March to 4.6% in April.

Joanne Hsu, director of the surveys of consumers at the University of Michigan, stated in a news release, On net, consumers did not perceive material changes in the economic habitat in April. In an interview with Bloomberg TV, Hsu added, Consumers are expecting a downturn, they’re not feeling as dismal as they were last summer, but they’re waiting for the other shoe to drop.