U.S. retail sales decline above expectations in August, consumer spending likely to grow 3.1 pct

The U.S. advance Census Bureau report showed yesterday that the country’s retail sales dropped in August. The print showed retail sales falling 0.3 percent in the month, much worse than the market expectations of a decline of 0.1 percent. The previous month’s print was upwardly revised to a gain of 0.1 percent from the earlier report of a fall of 0.1 percent. However, it provides slight consolation given the magnitude and underlying details, said TD Economics in a research note.

It might seem that Americans have taken a break from shopping, with the August retail sales report coming in highly disappointing. Lower gas and auto purchases were likely to be a drag on the headline, but the major weakness in the report provides a sobering prospective of the underlying momentum of the economy with consumer spending now likely to expand 3.1 percent, down 0.2 percentage points from the earlier projections, noted TD Economics.

But, coming months are expected to show strong figures. The job market continues to make headway with the initial claims data indicating quite a strong progress. The tightening conditions are seen in growth in wages that are expected to further spur income gains amongst consumers.

This report is unlikely to spur the U.S. Fed into action the coming week and is expected to bolster the dovish members on the Committee. But, the economic data flow is likely to turn up in the months ahead and is expected to give sufficient justification for the FOMC to hike rates by a notch by the end of this year, according to TD Economics.

Looking into August retail sales data, sales at gasoline stations dropped 0.8 percent sequentially, slightly dragging the headline. However, after rounding, ex-gas sales continued to be down 0.3 percent.  Auto dealers also witnessed lower sales in terms of dollars. Excluding gasoline and autos, core retail sales dropped 0.1 percent month-on-month.

Meanwhile, the ‘control group’, which excludes autos, gas, building materials and food services dropped 0.1 percent sequentially. On the other hand, decline in core sales were widespread.