By Lucia Mutikani
Source: www.reuters.com, April 2023
WASHINGTON, April 14 (Reuters) – U.S. retail sales fell more than expected in March as consumers cut back on purchases of motor vehicles and other big-ticket items, suggesting that the economy was losing steam at the end of the first quarter because of higher interest rates.
With the labor market cooling, retail sales are likely to remain weak. Ebbing demand for goods is undercutting production at factories, with other data on Friday showing manufacturing production declining last month. Still, the Federal Reserve is poised to raise rates one more time in May, before an anticipated pause in June in the U.S. central bank’s fastest monetary policy tightening cycle since the 1980s.
“Households are clearly feeling the pinch from rising interest rates and the extended period of high inflation and are reducing expenses to compensate,” said Ben Ayers, a senior economist at Nationwide in Columbus, Ohio. “While job and income gains remain strong, the cracks in the consumer sector are widening and a negative shift in hiring activity could be the final blow to place the economy in a recession.”
Retail sales dropped 1.0% last month, the Commerce Department said. Data for February was revised up to show retail sales falling 0.2% instead of 0.4% as previously reported. Economists polled by Reuters had forecast sales slipping 0.4%. They increased 2.9% year-on-year in March.
Retail sales are mostly goods, which are typically bought on credit, and are not adjusted for inflation. The second straight monthly decrease followed a sharp surge in January.
It coincided with the expiration of a temporary boost to the Supplemental Nutrition Assistance Program (SNAP) benefits authorized by the U.S. Congress to cushion low-income people and families against the hardships of the COVID-19 pandemic.
SNAP is commonly known as food stamps. Morgan Stanley estimated that the expiration of the emergency program resulted in about a $4 billion non-annualized hit to income.
“The expiration of SNAP benefits is another catalyst that will lead consumers at the lower end of the income spectrum to become more cautious spenders and allocate a greater share of their wallet away from discretionary items,” said Ellen Zentner, chief U.S. economist at Morgan Stanley in New York.
