Retail sales in United States took a hit in March, showing cautious consumer behavior as recession fears grow from recent banking turmoil. Sales dropped 1% from February, more than analysts' 0.4% prediction and worse than February's revised 0.2% fall.
Multiple reasons behind this slide. Smaller tax refunds a big factor, with IRS handing out $84 billion this March—about $25 billion less than March 2022. Likely made consumers pull back on spending, especially in department stores and on durable goods like appliances,furniture. General merchandise store spending down 3%,gas station sales down 5.5%. Without gas, retail spending fell 0.6% in March from February. But year-over-year, retail spending up 2.9%.
Economists say end of enhanced food aid benefits also hit consumer habits. Enhanced Supplemental Nutrition Assistance Program benefits ended February,may have squeezed March spending. Aditya Bhave, senior economist at Bank of America Global Research, stressed March's importance for tax refunds, noting many expected similar amounts as last year .
Labor market shows cooling signs too. Average hourly earnings up 4.2% year-over-year in March, down from February's 4.6% rise — slowest growth since June 2021 . Employment Cost Index (ECI),giving wider wage trend view, also shows pay raise moderation last year . ECI data for first quarter due later this month .
Yet labor market still relatively strong . Employers added 236,000 jobs in March,solid by historical standards, though below recent months' average growth . Job Openings and Labor Turnover Survey showed job availability high in February,despite 17% drop from peak of 12 million openings in March 2022. Revised data also showed weekly unemployment benefit claims rose, hinting at potential challenges ahead.
Federal Reserve economists expect U.S. economy may hit recession later this year as rising interest rates bite harder. Even before recent banking issues, Fed projected subdued growth with recession risks. Banking sector turbulence hasn't shifted consumer sentiment much. University of Michigan's consumer sentiment index dipped slightly in March amid bank failures, although it was already on downward trend.
April sentiment reading steady despite banking crisis,though rising gas prices pushed inflation expectations for year ahead from 3.6% in March to 4.6% in April. Joanne Hsu, director of University of Michigan consumer surveys, noted consumers brace for downturn but aren't as gloomy as last summer. “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,” she said in a recent interview. What comes next…?
