U.S. retail sales returned to growth in August, rising 1.2% as consumers accelerated purchases of motor vehicles and stocked up for the new school year, the Commerce Department reported. The increase followed a revised 0.5% decline in July, which had been the first monthly drop in nine months.
Economists surveyed by Reuters had expected retail sales - a measure that predominantly captures goods and is not adjusted for inflation - to rebound 0.8% in August following a previously reported 0.6% decline in July. Forecasts ranged widely, from a modest 0.2% gain to as large as a 1.1% increase, underscoring uncertainty around month-to-month consumer behavior.
Part of August's uptick reflected higher gasoline prices, which boosted receipts at service stations. Policymakers and market participants noted that households have continued to spend in the face of persistent inflationary pressures linked to the oil price shock and supply chain strains from the U.S.-led war with Iran. At the same time, consumers are showing greater price sensitivity and are increasingly choosing lower-priced goods.
Consumer sentiment deteriorated this month, even as spending has been supported by steady wage growth and recent gains in equity markets. Many households are drawing down savings and tapping into nest eggs to maintain consumption levels, according to the report.
Core retail sales - a narrower measure that excludes automobiles, gasoline, building materials and food services and that most closely maps to the consumer spending component of gross domestic product - surged 1.4% in August. That followed an unrevised 0.4% decline in July. Economists had expected core sales to increase 0.4%.
The rebound in retail activity, combined with continuing price pressures and a labor market that is regaining its poise after wobbling through much of the summer, has strengthened financial market expectations that the Federal Reserve will raise interest rates later on Wednesday.
Economic growth estimates for the third quarter currently exceed a 2.0% annualized rate, a notable step up from the economy's 1.5% pace of growth in the prior quarter.
Context and market implications
- Headline retail sales rose 1.2% in August, reversing a revised 0.5% drop in July.
- Core retail sales jumped 1.4% in August after a 0.4% decline in July, outpacing the forecasted 0.4% gain.
- The data have reinforced expectations that the Federal Reserve will raise interest rates later this week.