The Census Bureau reported Thursday that a key measure of U.S. retail sales unexpectedly rose 0.3% month-on-month in August, following a revised 0.4% decline in July. Unadjusted for inflation, retail sales were up 9.1% from a year ago.
Of the 13 categories of retail spending tracked by the Census Bureau, eight rose in August. Spending at food and beverage retailers rose 0.5% this month and is up 7.2% over the past year. Sales in restaurants and bars were up and car dealerships were up 2.8% over the month. Spending on building materials and equipment, clothing and sporting goods also increased.
Clothing and department stores “may have kept many back-to-school shoppers in store,” said Doug Hermanson, chief economist at Kantar. “Gas prices have fallen in recent months… From a parent’s perspective, it has freed up a little bit of money that they didn’t think they would have in May or June.”
Spending in August decreased at petrol stations as well as at furniture stores, electronics stores, health and care stores and at non-retail stores. Out-of-store sales, a rough estimate for e-commerce, likely fell in August due to the timing of Amazon Prime Day in July, market observers suggested.
The retail report suggests the tailwind from lower gas prices was a key factor that helped Americans cope last month. This raises the worrying prospect that a spike in gas or heating costs in the winter could lead to significant budget cuts as consumers have less dry powder today than they did a year ago when household balance sheets were better bolstered with savings. through lockdowns and government support.
“I think consumers are reacting to a number of things. First, they have taken out a lot of their savings and are also reacting to high prices on many goods,” said Luke Tilley, chief economist at Wilmington Trust.
Pain at the pump exacerbates this, he said. “Gas prices are certainly a challenge for consumers. They behave very much like a load. If we saw another spike in gas prices, we would expect weaker spending in many of these other retail categories.”
A delicate balancing act for the Fed
At its meeting next week, the central bank is widely expected to raise its benchmark interest rate by 75 basis points (or three-quarters of a percentage point) for the third consecutive time.
“The Fed has gone to great lengths to emphasize that in the future they will be data-driven… rather than trying to predict,” said Ross Mayfield, investment strategy analyst at Baird.
However, Fed officials will also have to factor in counterflows, such as the surprising downward revision of retail sales data in July, which was recalculated to reflect a 0.4% drop from an initially flat value. This suggests that consumers are starting to show some fatigue, analysts said.
“Consumers are still spending. However, in many cases they are taking home less,” Stifel chief economist Lindsey Piegza said in a research note. “As inflation continues to rise incessantly, shoppers are struggling to keep up with the high prices that erode purchasing power,” she said, adding that changes in spending patterns indicate that consumers are beginning to worry about their financial security.
Ted Rossman, senior industry analyst at Bankrate, said there is evidence that wealthier households’ balance sheets are holding up while lower-income families struggle to buy necessities, but this economic stress is creeping up the income spectrum.
“I think we’re starting to see that increase,” he said. [It’s] erode people’s savings. We see it in things like credit card balances,” he said, approaching record highs. “All of this has a cumulative effect.”