Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers

Jacob Hess

April 14, 2023

• Retail Sales

Consumer activity continued to be weak in March as a result of a decline in durable goods sales. US retail sales fell -1.0% MoM in March after a -0.2% MoM decline in February. On an annual basis, sales were only up 2.9% YoY. The decline was heavily impacted by contractions in both vehicle and gas station sales. Ex-motor vehicle and gas sales were down at a softer rate of -0.3% MoM and had an improved year-over-year gain of 6.0% YoY. The dismal results were impacted by fewer purchases of big-ticket items like electronics (sales down-2.1% MoM), furniture (sales down -1.2% MoM), and building materials (sales down -2.1% MoM). Each of these categories is now down on a year-over-year basis, including a sharp -10.3% YoY decline in electronics sales (the lowest since 2009 when excluding the pandemic period). Higher interest rates are clearly impacting consumers’ confidence in purchasing expensive items and limiting the ability to easily access or afford credit.

If there were sharp declines in these categories, then where were the gains? The main source of growth came from the sales of nonstore retailers which increased 1.9% MoM in March and are up 12.3% YoY. The increase in this segment represents a jump of over $2 billion in sales which offsets the declines in furniture, electronics, and building materials on the month. Additionally, there was an improvement, albeit slight, in other non-durable and services segments including sporting goods & hobby sales (up 0.2% MoM), health & personal sales (0.3% MoM), and food & drinking services (0.1% MoM). These might include more of your day-to-day purchases that don’t take a chunk out of finances when purchased and, most likely, consumers would not need to access credit when shopping for items in these segments.

Durable goods purchases tend to take the lead in indicating where the economy is going. Purchases for these types of goods are the first to decline when a recession is on the horizon as consumers start to consider their finances more and tighten their purse strings. This is especially true if they don’t have access to easy credit. Interest rates on credit card plans at commercial banks are up to 20.1% as of February 2023, just before the pandemic, this averaged around 15%. We should be set for more declines in sales going forward as rates will probably stay high for the rest of the year, and savings and checkings accounts are still recovering from inflation.