Retail spending in U.S. took a hit in March,with consumers pulling back as recession fears grow from recent banking chaos. Commerce Department says retail sales dropped 1% from February, worse than the expected 0.4% fall and deeper than February's revised 0.2% dip.
Analysts blame several factors: smaller tax refunds, job market jitters. IRS dished out $84 billion in refunds this March,$25 billion less than last year, Bank of America analysts note.
With smaller refunds, consumers are pinching pennies, especially at department stores and big-ticket items like appliances. Sales at general merchandise stores fell 3%, gas station sales plunged 5.5%. Excluding gas, retail spending still slipped 0.6% from February.
Year-over-year,retail spending did rise 2.9% though . Economists link smaller tax returns and end of extra food aid to consumer spending cuts. Aditya Bhave from Bank of America Global Research highlights March's refund expectations dashed .
End of pandemic food aid in February likely squeezed wallets more. Wage growth slowdown adds to cautious consumer vibe.
Average hourly earnings up 4.2% in March from last year, down from February's 4.6% and lowest since June 2021,says Bureau of Labor Statistics. Employment Cost Index shows wage growth cooling over past year; first-quarter data due soon.
Labor market strong but losing steam . March saw 236,000 jobs added, solid but below past six-month average. Job openings still high in February but down over 17% from last March's 12 million peak. Revised data shows unemployment claims higher than first thought.
Jobs may keep cooling,with Fed economists predicting a recession this year from rising interest rates' lag effects. Fed already saw slow growth and recession risks before banks like Silicon Valley Bank and Signature Bank collapsed.
Banking turmoil's hit on consumer mood limited so far. University of Michigan's consumer sentiment index dipped slightly in March amid bank failures,already on a downtrend. Latest readings show April steady despite gas prices pushing inflation expectations from 3.6% in March to 4.6% in April.
“On net, consumers did not perceive material changes in the economic environment in April,” said Joanne Hsu,director of University of Michigan's consumer surveys. “Consumers expect a downturn,not as gloomy as last summer, but waiting for the other shoe to drop,” she said.
