Retail sales showed consumers continue to propel the economy, as the headline number was stronger than expected, although the number excluding autos was weaker than forecast.
Retail sales gained 0.4% in August, while excluding autos, sales were flat in the month, the Commerce Department reported Friday.
Economists polled by IFR Markets expected sales to grow 0.2% and 0.1% excluding autos.
In July, sales rose a revised 0.8%, compared with the 0.7% climb previously reported, while ex-autos gained an unrevised 1.0%.
“The main takeaway is that the U.S. consumer is still looking good,” said Edward Moya, senior market analyst, New York at OANDA. The mixed retail sales report supports the case for the Fed to deliver a couple more rate cuts this year.
While trade remains an issue, optimism of a deal with China has grown.
“The Democratic debate last night showed that we could see the Chinese have a harder time negotiating a deal if we see a change in the White House.” And poll numbers indicating President Trump “is starting to lose his grip in key states (Pennsylvania, Florida, Texas and Michigan to name a few)” may prompt “him consider an interim deal,” Moya said.
“Retail momentum is remarkably strong — retail sales have increased by 6.3% annualized over the last three months,” wrote Mickey Levy, Berenberg Capital Markets' chief economist for the U.S. Americas and Asia, and U.S. Economist Roiana Reid. “We continue to expect healthy consumption growth to more than offset flat business fixed investment, declining exports, and the U.S. and global industrial slump and support moderate real GDP growth near 2%.”
But some see the darker side to the report. “The headline 0.4% gain in retail sales for August appears reassuring, beating the consensus forecast of 0.2% growth,” said Scott Anderson, chief economist at Bank of the West. “If maintained over a year it would imply a respectable compound annualized growth rate of 4.4% in retail sales. But pull back the lens a bit more and a clear slowdown in retail sales growth comes into focus.”
Also, without auto sales, there was no growth, he said. The 1.2% drop in restaurant and bar sales indicates a slip in consumer confidence. “It is one area where consumers have some immediate power to tighten their belts,” he said. “So it appears the trade war escalation in August and equity market volatility did get the U.S. consumers’ attention.”
The data indicate consumers are starting to notice “the economic and financial risks from the escalated trade war with China,” Anderson said. Additional tariffs could lead to weak holiday spending. “Even without further escalation, we think the U.S. consumer is ready to take a breather in their ‘shop til you drop’ marathon.”
Consumer sentiment improved, with the University of Michigan’s preliminary September consumer sentiment index climbing to 92.0 from 89.8 in August, beating the 90.7 expected by economists.
The current conditions index rose to 106.9 from 105.3 in August (106.2 expected), and the expectations index rose to 82.4 from 79.9 (82.0 forecast).
The index declined in July and August, leading to concern that consumers would soon slow their spending.
Import prices
Import prices dropped 0.5% in August after a revised 0.1% gain in July, first reported as a 0.2% increase, while export prices fell 0.6% after growing 0.2% in July, the Labor Department said.
Economists expected a 0.4% decline in import prices and a 0.3% slide in export prices.
Petroleum products and food drove the decline.
The numbers suggest inflation will remain tame.
Business inventories
Business inventories rose 0.4% in July, while sales grew 0.3% after a flat readings in June, the Commerce Department reported.
Economists expected inventories to grow 0.3%.
