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Retail sales rose a small 0.1% in August, or 0.2% if you exclude motor vehicles and gasoline. This was better than expected, given that total July sales were up a strong 1.1%. Ecommerce sales had a good month, picking up by 1.4%. In-store sales declined 0.2%, but again, that was after a very strong July.
Miscellaneous and health and personal care stores also showed a strong increase. But other store types showed weakness: Sales declined at electronics (-1.1%), food and beverage (-0.7%), clothing (-0.7%), furniture (-0.7%) and general merchandise (-0.3%) stores. Except for clothing stores, sales in each of these categories had risen as much in July as they subsequently fell in August, if not more.
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Motor vehicle sales edged down 0.1%. Car purchases have downshifted this year, as much of the pent-up demand for new cars and trucks left over from the pandemic has been met, causing inventories to rise. High sticker prices may also be hurting sales.
Estimates of GDP growth were revised upwards after today’s retail and industrial production reports. The fact that overall sales didn’t bounce back down following the July surge indicates that consumer spending will once again prop up economic growth. The small rise in August sales is consistent with an interest rate cut by the Federal Reserve, but only a quarter of a percentage point, and not a larger half-point cut.
Consumer spending on services excluding restaurants rose a healthy 0.4% in July, the latest month for which data are available. While spending on services is still rising at a good pace, it is below the strong average monthly increases of 0.7% logged from last September through March 2024.
A gradually cooling labor market is likely causing consumers to think about boosting their savings. However, don’t expect any sudden pickup in the savings rate. That only occurs when unemployment rises sharply and consumers start worrying about losing their jobs. But saving rates have been lower than the historical norm and may begin to rise slowly, which would cut into the cash available to support future retail spending. Still-high interest rates on consumer loans will likely continue to dampen lower-income households’ spending power, too.
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