Consumers Are Cutting Back On Big-Ticket Items, Retail Sales Show

Retail sales fell by more than expected in March, declining 1% from February, as consumers cut back on discretionary purchases, particularly bigger-ticket items like automobiles, appliances, furniture and electronics.

General merchandise and department stores also saw big drops in spending compared to February, down 3% and 2.5% respectively.

Compared to March, 2022, retail sales were up 2.9%, at $691.7 billion.

The month-over-month spending decline also reflects slowing inflation. The spending report, released today by the U.S. Commerce department, is adjusted for seasonality, but not for price changes.

“For the last year and then some, so much of the growth in retail has come from increased prices,” said Bobby Gibbs, a partner in consulting management firm Oliver Wyman’s retail and consumer goods practice. “As prices are starting to normalize, you’re seeing continued year-over-year declines in units in many parts of the sector, without the same level of price increases, which means slowing sales,” Gibbs said in an interview.

Consumers continue to be concerned about prices, which is curbing spending, Gibbs said.

“We’re definitely seeing consumers be more price-sensitive, which has been true for some amount of time,” he said. A food-retail survey that Oliver Wyman has been conducting for more than a decade shows consumers are the most price-sensitive they have been since the survey first was done in the United States in 2008.

On the positive side, Gibbs said, employment is strong and wages still are increasing, although not as fast as they had been. “As consumers see their income growth start to match some of the price growth, that will probably adjust some of the price sensitivity,” he said.

High-income and low-income shoppers are exhibiting very different spending patterns Gibbs said, with higher-income consumers far less price-sensitive than low-income shoppers.

Lower tax refunds this year hurt March spending, UBS analyst Michael Lasser said in a research note today. Year-to-date, tax refunds are down 10.4% compared to 2022, according to UBS.

The National Retail Federation, the nation’s leading retail trade group, remains bullish on consumer spending, attributing some of the March weakness to coolijng inflation.

Lower prices as inflation slows mean “fewer dollars spent even if consumers buy the same number of goods,” said Jack Kleinhenz, chief economist of the National Retail Federation (NRF), said in the retail trade group’s response to the March numbers.

The NRF still expects “positive sales growth” in 2023, and is forecasting that retail sales, excluding automobile dealers, gasoline stations, and restaurants, will grow by between 4% and 6% this year.

“Continued easing of inflation and the overall strength of the job market are keeping the fundamentals of the consumer economy strong,” Kleinhenz said.

The NRF excludes automobile dealers, gasoline stations, and restaurants from the Commerce department numbers, to calculate the change in “core retail” category. The core retail number was down 0.5% in March, compared to February, and up 4.6% compared to March 2022.

According to Sensormatic Solutions, the weaker spending in March was not accompanied by declines in store traffic. Store traffic was flat in March, and Sensormatic Solutions is seeing encouraging trends in traffic. “Shoppers are returning to stores with a higher traffic mix on the weekends, signaling a return to pre-pandemic patterns,” Brian Field, global leader of retail consulting and analytics at Sensormatic Solutions said via email.