US retail sales fall 1% amid high inflation, rising rates

Washington, April 15 (BNA): Americans slashed their retail spending in March for the second month in a row, a sign that consumers are becoming more cautious after a spending explosion in January.


Retail sales fell 1% in March compared to February, a sharper decline than the 0.2% decline in the previous month. Sales jumped 3.1% in January, as unusually hot weather and a big jump in Social Security benefits likely spurred spending, the Associated Press (AP) reported.


Sales fell among most retailers, including auto dealers, gas stations, electronics stores, and home and garden stores. Gas station sales fell 5.5% in March, although the data is not adjusted for price change. Gas prices fell last month.


Excluding auto dealers and gas stations, retail sales fell less than 0.3%. Spending jumped 1.9% at online retailers and rose 0.1% at restaurants and bars.


The decline in sales adds to other recent evidence that the economy is cooling as consumers grapple with rising interest rates and the impact of a year-long bout of high inflation. Companies are posting fewer open positions, and hiring has slowed even as it continues to be strong, and layoffs mount.


The slowdown in spending has raised fears that the economy is close to recession. Growth is likely to be around 2% at an annual rate in the first three months of this year, but falling retail sales suggest that consumers, who power about two-thirds of economic activity, are losing momentum. Economists said that if consumers remain weak, the economy could contract in the April-June quarter.

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“The cumulative effect of historically high inflation, higher interest rates, and reduced access to credit is already affecting consumers’ ability and willingness to spend,” said Lydia Bousseur, chief economist at EY Parthenon. “The consumer driver lost significant momentum as the (first) quarter progressed, setting the stage for weak consumption growth in the second quarter.


In addition, economists are watching closely to see if banks are holding back on lending in the wake of the collapse of two large banks last month. Many smaller banks have lost deposits to larger competitors, which could force them to offer fewer loans to consumers and businesses. This can slow growth.


On Wednesday, minutes from the Fed’s March 21-22 meeting revealed that central bank economists now expect a “moderate recession” later this year, in large part because lower lending may weigh on growth.


However, consumers could rebound in the coming months as companies add jobs and wages rise at an historic fast pace. Bank of America economists calculated that the small tax payments in March are likely to lead to a decline in spending last month.


In an analysis of its card customers’ spending, Bank of America found that spending in several areas rebounded in late March, including airline tickets, entertainment, dining out and groceries.


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