US retail sales rise unexpectedly, but inflation is hindering spending

  • Retail sales up 0.3% in August
  • July figures revised to show 0.4% drop in sales
  • Core retail sales unchanged; July sales revised lower
  • Weekly jobless claims fall by 5,000 to 213,000
  • Manufacturing output up 0.1% in August

WASHINGTON, Sep 15 (Reuters) – U.S. retail sales unexpectedly jumped again in August as Americans ramped up their purchases of motor vehicles and dine out more amid low gasoline prices, but demand is cooling as Federal The reserve aggressively raises interest rates to fight inflation.

Consumer spending, however, is likely to remain firmly supported in the labor market, with other data showing Thursday as the number of people filing new claims for unemployment benefits fell to a more than three-month low last week. .

The data was one of the last batch of reports released ahead of the Fed’s policy meeting next Wednesday. Along with a surprise increase in consumer prices in August, the reports give the US central bank ammunition to deliver a 75-basis-point rate hike for the third time in a row.

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“Demand appears to be slowing this quarter, but job losses are modest at this point in the economic cycle,” said Christopher Rupkey, chief US economist at FWDBONDS in New York. “The recession storm clouds that threaten the economy have flown more offshore and will likely convince Fed officials to put their foot down on the brakes.”

Retail sales rose 0.3% last month, driven also by back-to-school purchases. But the July figures were revised upwards to show a 0.4% drop in retail sales, as previously reported. Economists polled by Reuters had forecast that sales would remain unchanged, ranging from a 0.5% drop to a 0.5% increase in estimates.

Retail sales, which are mostly goods and not adjusted for inflation, rose 9.1% year-on-year in August.

Retail Sales

Some economists were disappointed that monthly sales did not reverse July’s decline, despite consumers getting relief from higher gasoline prices. He said this was a sign that extremely high inflation was forcing some cuts on discretionary spending as consumers were focusing on essential goods.

Gregory Dako, chief economist at EY-Parthenon in New York, said, “While consumers are generally more willing to spend, many households, especially those at the lower-to-middle end of the income spectrum, feel constrained by higher prices. are.”

Although inflation remains a headache, it is unlikely to rise, with import prices falling for the second straight month in August, easing commodity prices and a stronger dollar, with a separate report from the Labor Department on Thursday. . read more

Gasoline prices are down about 20% from their record peak in June, according to data from the US Energy Information Administration. Sales at service stations fell 4.2% last month, while receipts at auto dealerships rose 2.8%.

There was solid growth in sales at clothing and general merchandise stores, driven by back-to-school shopping. But online and mail-order retail sales fell 0.7% in the past month fueled by Amazon’s Prime Day promotion.

Receipts at furniture stores fell 1.3%, while sales at building materials and garden equipment retailers rose 1.1%. Sales at electronics and appliance stores fell 0.1%. Hobby, musical instrument and book stores saw tremendous growth in sales. Receipts grew 1.1% in bars and restaurants, the only service category in the retail sales report.

Stocks were lower on Wall Street. The dollar was stable against a basket of currencies. US Treasury prices fell.

tight labor market

Excluding automobiles, gasoline, building materials and food services, retail sales remained unchanged last month. Data for July was revised lower so that these so-called core retail sales increased by 0.4% instead of 0.8% as previously reported.

Core retail sales correspond most closely with the consumer spending component of GDP. A steady pace of consumer spending and strong export growth helped limit the drag on the economy from a moderation in the pace of inventory accumulation in the second quarter.

Economists estimate inflation-adjusted core retail sales fell at least 0.5% in August. This, together with the downward revision in July, is likely to keep real consumer spending on a moderate growth trajectory. Economic growth estimates for the third quarter are mostly below the 2% annual rate.

The economy contracted at a rate of 0.6% in the previous quarter after declining at a pace of 1.6% in the January-March period. But it’s not in a recession, showing a 1.4% expansion rate on the earnings side of the growth ledger in the second quarter, thanks in part to the flexibility of the labor market.

A third Labor Department report showed the state’s initial claims for unemployment benefits fell by 5,000 to a seasonally adjusted 213,000 for the week ended September, the lowest level since the end of May.

Reuters Graphics

There has been no jump in layoffs, despite hand-holding about a possible slowdown next year due to higher borrowing costs. Economists say companies are hoarding workers after experiencing difficulties in hiring over the past year as the COVID-19 pandemic forced some people out of the workforce due to the prolonged illness caused by the virus.

There were 11.2 million job opportunities at the end of July, with two jobs for every unemployed person.

“We expect employers to slow down the pace of hiring before making any major layoffs,” said US economist Nancy Vanden Houten, head of Oxford Economics in New York.

While tighter monetary policy hasn’t slowed the labor market significantly, manufacturing is beginning to feel the pinch. Production at factories barely rose in August, the Fed’s fourth report showed. read more

Manufacturing’s struggle was exacerbated by the Philadelphia Fed’s fifth report in September showing factory activity in the contracting mid-Atlantic region. In New York state, manufacturing held steady this month, but at weaker levels, the New York Fed’s sixth report showed.

Empire State and Philly Fed

“Supply chain constraints and price pressure seem to be easing, which is positive for manufacturing,” said Rubila Farooqui, chief US economist for High Frequency Economics in White Plains, New York. “But factory activity is likely to moderate in response to slowing demand amid a rising interest rate backdrop.”

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Reporting by Lucia Muticani; Editing by Paul Simao and Andrea Ricci

Our Standards: Thomson Reuters Trust Principles.

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