Retail Sales Slowed in March as Higher Interest Rates Take Hold

April 18, 2023

U.S. consumer spending was down in March for the second consecutive month, adding to growing signs of a slowing economy.

Overall spending at stores, online, and in restaurants declined by a seasonally adjusted 1% in March from the previous month, according to the Commerce Department. Much of the decline was due to a pullback from consumers purchasing big-ticket items like furniture, appliances, and motor vehicles.

A decline in sales of these items, which are frequently financed or purchased on credit, suggests that the Federal Reserve’s efforts to slow economic activity via higher interest rates are starting to have the intended effect. Sales a gas stations also saw a steep decline, likely reflecting falling gasoline prices.

The Commerce Department report mostly captures spending on goods rather than services like travel, rent, and utilities, but credit and debit transaction data from Bank of America suggests spending on many services also slowed in March.

On an annual basis, retail spending increased 2.9% in March, the slowest year-over-year growth since June 2020, when the economy was still largely locked down during the pandemic.

Analysts have also noted that lower income tax returns relative to recent years may also be contributing to the retail slowdown. The amount refunded to taxpayers as of the end of March was 10.4% lower than last year, according to the IRS.

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