Otherwise, shoppers did not spend much more than in July, prompting forecasters to slightly lower their estimates for U.S. growth.
By guest author Harriet Torry from Wall Street Journal
Spending on vehicles drove strong retail sales in August, suggesting American shoppers continue to support the economy at a time of heightened global uncertainty.
Retail sales, a measure of purchases at stores, restaurants and online, climbed a seasonally adjusted 0.4 % in August from a month earlier, the Commerce Department said Friday, September 13, 2019. The robust report beat economists’ expectations and came on the heels of stronger spending in July than initially estimated, a 0.8 % rise. The data provide reassurance that household spending remains an economic bulwark against signs of a global slowdown, though perhaps not enough to prevent some softening in U.S. growth in the third quarter.
The increase in retail sales in August was driven by a 1.8% jump in spending on vehicles, a sign, consumers felt comfortable enough in their finances to make large purchases. They also spent more online, on building materials and on sporting goods.
Still, outside of motor vehicles and parts, retail sales were flat in August, and without both vehicles and gasoline they rose a tepid 0.1%. Consumers spent less on food, dining out, and at furniture and department stores last month. That softness in core retail sales prompted downgrades to forecasts for gross-domestic-product growth in the third quarter. Both the Federal Reserve Bank of Atlanta’s GDP. Now model and forecasting firm Macroeconomic Advisers’ forecast slipped, to seasonally adjusted annual rates of 1.8 % and 1.9 %, respectively.
The U.S. economy expanded at a 2.0 % rate in the second quarter and a 3.1 % pace in the first.
Friday’s Commerce report does not track spending on most services, such as health care and housing, and the figures are not adjusted for inflation. Retail sales account for about a quarter of all consumer spending.
Consumers are the main driver of the U.S. economy, and they continue to benefit from a low unemployment rate and rising wages in the 11th year of the current economic expansion.
Retail spending offers vital support to other parts of the economy struggling with trade-related uncertainty.
“There isn’t a lot of strength outside consumption,” said Paul Ashworth, an economist at Capital Economics Ltd., noting weakness in business investment, corporate profits and exports. Yet since consumer spending accounts for such a large share of economic output, “a strong consumer can bail you out of weakness in other areas,” he added.
Matt Moore, a sales manager at an automotive dealership in Nicholasville, Ky., recently bought a used motorboat, a purchase his family had been mulling since last year.
“This year’s been really good,” Mr. Moore said, with the local economy supported by jobs in the equestrian and auto industries.
Auto makers Honda Motor Co. and Toyota Motor Corp. both reported strong American sales in August, which analysts attributed in part to lower short-term interest rates. August is a key month for auto dealers to whittle down their stockpiles of older models.
Data on retail sales can be volatile from month to month, although the broader trend shows sales continue to rise. From a year earlier, retail sales increased 4.1% in August.
The finance chief of retailer Urban Outfitters Inc. earlier this month said, “It feels like the consumer is still in a good place; it feels like the economy is still in a good place.”
“Last year was obviously an incredibly strong year,” Chief Financial Officer Frank J. Conforti said at a retailing conference September 5, 2019. “Maybe there was a bit of euphoria or something driving purchase behaviour relative to tax benefit, but everything still feels very strong.”
While consumer spending remained strong as the third quarter progressed, the outlook for the months ahead hinges on the trade situation and the labour market.
The unemployment rate was a low 3.7% in August, although the pace of job gains slowed, the Labor Department said last week. That suggests that a global economic slowdown isn’t driving the U.S. into recession but has dented growth. Average hourly earnings climbed 3.2% from August 2018, putting spending power in consumers’ wallets.
While mounting global uncertainty and trade tensions have taken a toll on the manufacturing sector and business investment, consumer confidence picked up slightly at the start of September. The University of Michigan’s preliminary index of consumer sentiment rose to 92.0, from the end-of-August reading of 89.8.
The continuing trade war and the uncertainty tariffs have engendered are a wild card for U.S. businesses and consumers, economists say. The U.S. and China have both made goodwill gestures in recent days.
On Wednesday, September 11, 2019, President Trump delayed a new round of tariff increases on USD 250 billion of imports from China that would have taken effect Oct. 1. China then moved to exempt purchases of U.S. soybeans, pork and other agricultural products from punitive tariffs.