Consumers pull back on big-ticket purchases

Article by Zak Stambor | Apr 14, 2023

The news: US retail sales growth slowed to 2.9% year-over-year (YoY) in March, per the US Commerce Department’s monthly report. Excluding auto and gas, sales rose 6.0% YoY.

That’s a slowdown from February (5.4% YoY, or 7.9% YoY excluding auto and gas) and January (7.7% YoY, or 9.0% YoY excluding auto and gas).
Total sales for the first three months of the year were up 5.4% YoY.

Feeling inflation: While inflation eased to 5.0% YoY (or 5.6% excluding food and energy) in March, it still remains stubbornly high.

Consumer sentiment remained essentially unchanged in March as it hovers at 3% below a year ago, but 27% above the all-time low from last June, per the University of Michigan. But those numbers are slightly deceiving because they paper over an uptick in sentiment among lower-income consumers and a dip among those with higher incomes.
Credit card balances soared in Q4, per the New York Federal Reserve Bank, and many younger borrowers are struggling to make their payments. That helps explain why few consumers are buying big-ticket items such as vehicles (up 0.1% YoY), furniture (down 2.4% YoY), and electronics (down 10.3% YoY).
US consumers’ year-ahead inflation expectations are up for the first time since October 2022, per the New York Fed. Near-term inflation expectations increased 0.52 percentage points to 4.7%. That’s the largest jump in one-year inflation expectations since March 2022.

Those inflation expectations may be right as OPEC+ recently announced plans to cut oil production, which will cause gas prices to spike and drive consumers to pull back even more.

Slowing growth: Slower growth appears to be the new normal. Our US Retail Sales Forecast suggests that growth is slowing. US retail sales will hit $7.334 trillion this year, according to our forecast, a growth of 3.3% YoY, down from 8.1% YoY last year.

The National Retail Federation similarly expects growth to moderate with its forecast of 4% to 6% growth (the two forecasts have different methodologies, most notably with NRF excluding auto dealers and gasoline stations).

The big takeaway: Looking at the YoY retail sales numbers over the first three months of the year, you see a clear trend toward slowing growth.

That isn’t surprising given that consumers feel the strain of inflation and high borrowing costs.
We expect those trends to continue as consumers pull back on discretionary purchases.