WASHINGTON: US retail sales increased more than expected in August, pointing to solid consumer spending that should continue to support a moderate pace of economic growth.
The report from the Commerce Department on Friday could further allay financial market concerns of a recession, which have been fuelled by a year-long trade war between the United States and China as well as slowing global growth.
Still, the Federal Reserve is expected to cut interest rates again next Wednesday to blunt some of the hit from the trade war on the longest economic expansion in history.
Fed Chair Jerome Powell said last week he was not forecasting or expecting a recession, but reiterated the US central bank would continue to act “as appropriate” to keep the expansion, now in its 11th year, on track. The Fed lowered borrowing costs in July for the first time since 2008.
“The winds of recession aren’t coming closer to shore if the consumer continues to buy their hearts out,” said Chris Rupkey, chief economist at MUFG. “Fed officials are unlikely to cut rates too much deeper as they seek to get out in front of the risks the economy faces acting early instead of being too late.” Retail sales rose 0.4 per cent last month, lifted by spending on motor vehicles, building materials, health care and hobbies. Data for August was revised slightly up to show retail sales increasing 0.8 per cent instead of 0.7 per cent as previously reported.
Economists polled by Reuters had forecast retail sales would gain 0.2 per cent in August. Compared to August last year, retail sales advanced 4.1 per cent. Retail sales have increased for six straight months, the longest such stretch since June 2017.
Excluding automobiles, gasoline, building materials and food services, retail sales climbed 0.3 per cent last month after increasing by a slightly downwardly revised 0.9 per cent in July. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have jumped 1.0 per cent in July.
Consumer spending, which accounts for more than two-thirds of the economy, increased at a 4.7 per cent annualised rate in the second quarter, the most in 4-1/2 years.
Economists expect consumer spending will pull back to just below a 4.0 per cent rate in the third quarter, which would be more than enough to keep the economy growing at a steady pace, rather than tipping into recession as signalled by financial markets.
“A still strong pace for spending so far in the third quarter,” said Jim O’Sullivan, chief US economist at High Frequency Economics in White Plains, New York. “Including services, we estimate total real consumer spending for the third quarter to date is up at about a 3.7 per cent annual rate from the second-quarter average, that is positive for GDP.” Strong consumer spending is encouraging retailers to boost inventory. A second report from the Commerce Department on Friday showed business inventories increased 0.4 per cent in July after being unchanged in June. Stocks at retailers rebounded 0.8 per cent, the most in six months, after falling 0.2 per cent in June.
The inventory increase bodes well for GDP growth. The Atlanta Fed is forecasting the economy to grow at a 1.9 per cent rate in the third quarter. The economy grew at a 2.0 per cent pace in the April-June quarter.
US Treasury yields rose while the dollar fell against a basket of currencies. Major US stock indexes were trading mixed.
Import prices fall
Financial markets have fully priced in a rate cut at the Fed’s September 17-18 policy meeting. Most economists expect additional monetary policy easing in October and December. While underlying consumer prices have accelerated in the past three months, inflation is likely to remain benign.
In a separate report on Friday, the Labour Department said import prices dropped 0.5 per cent last month amid declines in the cost of petroleum products and food. In the 12 months through August, import prices decreased 2.0 per cent after dropping 1.9 per cent in July.
Import prices have now declined for five straight months on an annual basis.
Low inflation, the lowest unemployment rate in nearly half a century and about $1.27 trillion in personal savings are underpinning consumer spending. Even as the economy has been slowing, layoffs have remained low.
Last month, auto sales accelerated 1.8 per cent after edging up 0.1 per cent in July. Receipts at service stations fell 0.9 per cent, reflecting cheaper gasoline. Sales at building material and gardening equipment stores jumped 1.4 per cent, the most since January.
Online and mail-order retail sales increased 1.6 per cent after shooting up 1.7 per cent in July. Receipts at health and personal care stores rose 0.7 per cent, mirroring a jump in health care inflation in August. Americans also spent more at hobby, musical instrument and book stores, boosting sales 0.9 per cent.
But there were pockets of weakness in the retail sales report. Receipts at clothing stores fell 0.9 per cent last month and sales at electronics and appliance stores were unchanged.
Furniture sales dropped 0.5 per cent, the largest decrease in eight months. Americans also cut back on spending at restaurants and bars, with sales declining 1.2 per cent, the most since September 2018.