American consumers are growingly supporting the domestic economy

American consumers growingly support the domestic economy

According to a report in WSJ, The Wall Street Journal, American consumers are propping up the U.S. economy, buffering it from a global slowdown and limiting repercussions from a struggling manufacturing sector.

Sales at retailers and restaurants have recovered after a bumpy start to the year, posting a 0.2 % monthly gain in August and a 2.2 % annual increase, the Commerce Department said Tuesday. That improvement likely will be enough to offset a slowdown at factories and oil fields, signaling continued economic growth in the third quarter.

Households have been enjoying cheaper imports thanks to a stronger dollar, and fatter wallets thanks to low gasoline prices. But those same forces are hurting manufacturers, particularly exporters or firms in the oil and gas sector. Industrial production, which measures output in the manufacturing, utilities and mining sectors, fell a seasonally adjusted 0.4 % in August from July, the Federal Reserve said Tuesday, the sixth monthly drop over the past eight.

Economists expect the strong retail numbers will be enough to keep the economy humming, largely because consumer spending accounts for roughly 70% of economic output.

That should give the Federal Reserve a final piece of good news as it starts a pivotal two-day meeting Wednesday. Fed officials have been keeping a close eye on consumers to assess whether the economy is finally strong enough for them to raise the overnight loan rate from near zero for the first time in nine years.

Jesse Hurwitz, U.S. economist at Barclays, described U.S. consumers as “buoyant” and raised the firm’s estimate of third-quarter growth to a 2.4 % annual rate from 2.2 %. “We expect the consumer to remain the dominant force behind U.S. economic growth,” he wrote in a note to clients.

Retail sales haven’t fallen for six straight months, a sign that a year of lower gasoline prices is percolating down to consumers. Prices at the pump fell sharply in August, from an average of USD 2.794 a gallon in July to USD 2.636 in August, according to separate data from the Energy Department. That drove down gas sales by 1.8 % over the month.

Households seem to have noticed. Excluding gas, retail sales rose 0.4 % in August and a solid 4.4 % over the year. “We’re having a record year this year,” said Dale Barth, who runs Red Bone Alley, a restaurant in Florence, S.C. “I think people are loosening up a little bit, having a little fun and breathing out a little bit.” Barth said business is up about 7% over last year. He is building two new locations and a distribution center for a side business selling sauces and marinades nationwide. Lower gasoline prices have been good to him. “That extra money, that impacts real people and real people are the people going to the restaurants,” he said.

Revised figures from the Commerce Department showed sales rose 0.7 % in July and were unchanged in June. Excluding autos, sales rose 0.1 % in August—a month that brought a jolt of uncertainty, with renewed worries about the Chinese economy and sharp swings in global financial markets.

Stephen Stanley, chief economist at Amherst Pierpont Securities, said consumers probably aren’t paying much attention to the markets. “I suspect, until proven otherwise, that households for the most part are just going about their business, either not caring much or oblivious to the gyrations in global markets last month,” Stanley wrote in a note to clients.

Bill Gouldin, president of Strange’s Florist, which operates retail garden centers and flower shops in four locations around Richmond, Va., said business so far this year has been “normal to good.” “I don’t think the economy is off to the races but it was stable,” he said. “As a result of that, combined with good weather, we had a good spring.”

Strong spending in the spring helped the economy grow at an annual rate of 3.8 % in second quarter. A separate report from the Commerce Department late last month found that broad-based consumer spending rose 0.3 % in July, roughly the same pace as June.

www.wsj.com


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