Household spending has played a vital role in driving the recent economic expansion in the United States. With the onset of the COVID-19 pandemic, many households relied on credit and debit cards to fund consumption needs while they were unable to leave their homes. However, as the economy begins to reopen, households are displaying signs of restraint. In March, household card spending grew by only 0.1% compared to a year earlier, marking the slowest pace of growth seen since February 2021. This article will examine the factors behind the recent deceleration in household card spending.
Overview of Household Credit and Debit Card Spending in March
According to the latest report by the Federal Reserve Bank of New York, household card spending increased by only 0.1% in March compared to the previous year. This marks a significant slowdown from the 10.9% growth seen in March 2020. The report also noted that this is the slowest pace of card spending growth seen since February 2021.
Comparison of Household Card Spending to Previous Month
While the year-over-year growth figures show a slowdown, it’s important to also consider the month-over-month changes in card spending. The March data reveals that household card spending declined 1.5%, seasonally adjusted, compared to the previous month.
Factors Driving the Slowdown in Card Spending
Multiple factors are driving the recent slowdown in household card spending. Firstly, slowing wages have had a significant impact on households’ consumption ability. After-tax wages and salaries growth slowed to 2% year-over-year in March. This suggests that households are facing reduced purchasing power, which is causing them to curb their spending.
Secondly, the impact of lower tax refunds is also contributing to the slowdown. Cumulative tax refunds are tracking around 10% lower than last year, meaning that households are not receiving as much income as they have in the past. This is further contributing to the reduced ability to make purchases.
Thirdly, the expiration of the Supplemental Nutrition Assistance Program (SNAP) emergency allotments is also having an impact on household spending habits. According to the report, the increased benefits under SNAP expired in most states at the end of February. Without the added benefit, households may be having a harder time purchasing necessary items, resulting in reduced spending habits.
Analysis of Wage and Salary Growth in March
The data shows that the 2% growth seen in wages and salaries was the lowest rate of increase seen since June 2020. Slowing wage growth has implications for households’ ability to engage in consumption as it reduces the amount of disposable income available for purchases.
The comparison of cumulative tax refunds to the previous year is worrisome, as they are currently tracking around 10% lower. Tax refunds serve as an important source of income for households, and with less income received from tax refunds, households are likely to curtail their spending habits.
Impact of Expiration of Increased SNAP Benefits
The expiration of the increased SNAP benefits in most states at the end of February is also having a significant impact on household spending habits. Without the added benefit from SNAP, households may be struggling to afford basic goods, which is making them more cautious with their spending.
Breakdown of Month-Over-Month Decline in Spending
The month-over-month decline in spending was broad-based across retail and services, with retail spending down 2% and services spending down 1%. This suggests that households are spending less across a variety of categories, and not necessarily only in specific sectors.
Conclusion and Potential Risks for the Future
While the economy is rebounding, there are still several risks that could impact household consumption. The cooling labor market and a sustained deceleration in wages could tilt the risks to the downside. If wages continue to slow, households’ purchasing power will be further impacted, leading to a further slowdown in card spending. Additionally, the expiration of federal unemployment benefits in September 2021 may also lead to decreased consumption as households lose an important source of income. Therefore, it will be important to monitor these factors to better understand the outlook for household card spending.
