Retail spending by American consumers slowed in March for a second consecutive month, adding to recent signals that the economy is slowing as the Federal Reserve’s tightening monetary policy appears to be having its desired effects. The Census Bureau’s advance estimates of U.S. retail and food services sales for March 2023, adjusted for seasonal variation but not for inflation, declined by -1% from the previous month.
Retail sales gained 2.9% since March 2022, before accounting for inflation. With real retail spending dropping about -2% in the past year, the main engine of U.S. economic growth is shrinking, and that makes a recession more likely.
The Fed has raised its benchmark lending rate nine times since March 2022 in its effort to fight the biggest inflation threat in over four decades. The banking crisis that erupted last month has receded due to swift Fed action to shore up small and medium-sized banks, but it has made a recession more likely and complicated the U.S. central bank’s challenge to quash inflation without causing a recession.
Shoppers pulled back on purchases of items such as vehicles, furniture and appliances amid climbing interest rates. Overall purchases at stores, restaurants and online declined a seasonally adjusted 1% in March from the prior month, the Commerce Department said Friday. Consumers also spent less on gasoline, reflecting a downward trend in prices.
The consumer price index (CPI) for March was released Wednesday and it showed some good news: Inflation declined from a 12-month rate of 6% in February to 5% for the 12 months through March. In addition, the CPI declined to one-tenth of 1% in March, following a half-point and 0.4% reading in January and February.
However, when you strip out food and energy prices, the core rate of inflation for the 12 months through March declined, but not by as much as the headline CPI rate CPI measure of inflation. The decrease in headline CPI index of inflation was largely attributable to a decrease in gasoline prices since the Ukraine invasion on February 23, 2022.
The stubbornness of inflation excluding the cost of energy and food indicates more tightening might be needed to wring inflation expectations from the U.S. economy.
“Core and headline inflation remain far too high, and we don’t really expect the inflation story to go away,” said Erik Lundh, an economist at The Conference Board at a webinar for C-suite executives at large companies. “We’re forecasting a 3% inflation rate toward the end of 2023 and the Fed might get closer to its 2% target towards the end of 2024.”
The Conference Board expects a recession to begin this quarter, with real quarterly gross domestic product shrinking -1.8% in the second and third quarters of 2023 and by -0.6% in the final quarter of 2023 before a new expansion begins in the first quarter of 2024.
The S&P 500 stock index closed Friday at 4137.64, down -0.21% from Thursday, and up +0.79% from a week ago. The index is +84.93% higher than the March 23, 2020, Covid bear market low and down -13.74% from its January 3, 2022, all-time high.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances.
The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions.
This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.