Retail sales in the US have seen a decline for the second consecutive month in March, indicating a cautious spending attitude among consumers following a significant surge in January. Sales dropped by 1% in March, a sharper decline compared to the previous month’s 0.2% fall. The January sales rose by 3.1%, driven by warm weather and an increase in Social Security benefits that stimulated consumer spending. The majority of retailers recorded a drop in sales, including auto dealers, electronics stores, filling stations, and home and garden stores. Filling station sales plummeted 5.5% in March, although the data is not adjusted for price changes, and fuel prices decreased last month.
When car dealers and filling stations are excluded, retail sales fell by a less dramatic 0.3%. However, spending at online retailers rose by 1.9%, while restaurants and bars saw a 0.1% increase. This decline in sales adds to other evidence indicating that the economy is cooling, with consumers struggling with higher interest rates and a year-long bout of elevated inflation. The job market has been impacted, with companies posting fewer open positions, slowing down hiring, and seeing a tick up in layoffs. The slowing of spending has raised concerns that the economy could be heading towards a recession.
The growth rate in the first quarter of this year is expected to be approximately 2% at an annual rate, but falling retail sales indicate that consumers, who make up two-thirds of economic activity, are losing momentum. If consumers remain weak, the economy could even contract in the April-June quarter, economists said. Economists are closely monitoring the situation to see if banks pull back on lending following the collapse of two large banks last month. Smaller banks have lost deposits to larger competitors, which could result in them offering fewer loans to consumers and businesses, further weakening growth.
Although economists at the Federal Reserve’s March 21-22 meeting revealed that the central bank’s staff economists are now forecasting a “mild recession” later this year due to the potential reduction in lending, consumers could rebound in the coming months. Businesses are adding jobs, and wages are increasing at a historically rapid pace, which could potentially boost consumer spending. The Bank of America reported that smaller tax refunds in March likely held back spending last month. Nonetheless, the Bank of America’s analysis of customer card spending found that spending in many areas, including airline tickets, entertainment, dining out, and groceries, rebounded towards the end of March.
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