Declines in the March data were widespread
Retail sales contracted in March.
Retail sales plunged by 1.0% in March after falling by a revised -0.2% in February. The outcome was worse relative to the -0.5% that was expected. After bursting out of the starting blocks at the start of the year, propelled by a record increase in Social Security payments, the back-to-back declines in retail sales indicate that consumers are turning more cautious.
Unusually harsh March weather—it snowed in places that never see snow—exacerbated the weakness. The drop in building material and garden stores was unusually large and reflects the fact that the ramp-up in building and gardening activity was smaller than usual for the month. Remodeling activity is also starting to abate in response to tighter lending conditions.
Declines in the March data were widespread. Gasoline station sales declined the most, -5.5%, falling even faster than the 4.6% drop in prices at the pump. Sales of motor vehicles and parts fell 1.6%, consistent with the softer unit-selling rate reported earlier in the month. Vehicle producers are still trying to catch up on pent-up demand, but affordability is a hurdle for big-ticket sales. Financing rates are soaring, while loan duration is falling. That has left some vehicles as expensive as a mortgage payment.
Another big-ticket category that fell was furniture store sales, down 1.2%. That reflects the slowdown in spending associated with the housing recession and slowdown in remodeling activity.
Additional tightening in credit to households, coupled with a higher propensity to save, is likely to take a deeper toll on consumer spending.
An indication that consumers are becoming more cautious with their spending dollars was seen in general merchandise store sales, down 3%, with department store sales -2.5%. Discretionary spending categories such as electronics and clothing were down 2.1% and 1.7%, respectively.
Separately, the saving rate has been trending up since last Fall. Consumers appear to have stopped dipping into the excess savings they amassed during the pandemic. Much of that is concentrated in higher income households who treat those reserves as wealth; they are less likely to spend it. This has shown up in a slowdown in the use of credit cards, which have become much more expensive to carry since rate hikes.
Among the few areas that showed gains in March, e-commerce was the only to register a notable increase of 1.9%, while the remaining categories were up only several tenths of a percent. Even sales at restaurants and bars barely showed up at the register, rising by just 0.1%. After adjusting for inflation, restaurant sales actually fell 0.5% in March. That is despite the record number of people out on vacation during the month. March was a record month for Spring Break vacations.
The control group sales, which are used in the calculation for GDP, fell 0.3% in March. That is the first decline recorded this year. The losses reflect both unusually harsh Spring weather and a slowdown in underlying momentum. The data now suggest that the rebound in consumer spending in the first quarter was more muted than previously expected.
Bottom Line:
Consumers’ wallets were hit by a trifecta of limiting factors in March. Slower revolving credit growth in recent months, a sharper falloff in consumer sentiment and harsher weather all limited consumers’ appetite to spend. Additional tightening in credit to households, coupled with a higher propensity to save, is likely to take a deeper toll on consumer spending in the months to come. Our base line forecast expects consumer spending to stall over the summer.
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