U.S. retail sales drops in August, consumption growth likely to be slightly weaker in Q3

The advance Census Bureau report showed that U.S. retail sales dropped 0.2 percent in August. This was lower than consensus expectations, which had called for a rise of 0.1 percent. Furthermore, the July month’s sharp rise in retail sales was cut in half, with the July gain now reported as 0.3 percent sequentially.

Sales at motor vehicle & parts dealers negative contributed to the headline figure as the component fell 1.6 percent. This is not surprising given the pullback in August auto sales to 16 million annualized. This drop was more than offset by the sharp rise in gasoline stations spending, which were up 2.5 percent on the month with the ex. autos and gas measure down 0.1 percent on the month.

The so-called ‘control group’, which strips gas, autos, building materials and food services, dropped 0.2 percent sequentially, below the 0.2 percent rise expected by economists. Gains in the control group were comparatively broad, with miscellaneous, furniture, food & beverage and general merchandise recording gains. Unusually, e-commerce sales dropped 1.1 percent, along with declines in clothing, electronics and building materials.

The previous month’s advance report was upbeat given the prospect that American consumers were back in full force. However, today’s report erased much of the outsized gains that occurred last month. Furthermore, today’s report also showed that consumers were hesitant in spending in the month of August, in spite of the solid job and income figures as of late. In all, the new information implies that consumption in the third quarter is not as solid as though otherwise, with real PCE growth expected to be near the 2.5 percent mark – down from the 3.2 percent in the second quarter, noted TD Economics in a research report.

Still, as far as the fall in retail sales during August, most of it is likely due to the disruption in economic activity in southeast Texas. While some retailers possibly saw pre-emptive buying before the landfall, others likely faced prolonged closers because of weather conditions and lack of inventory. The Census Bureau showed that reports implied that “hurricane had both positive and negative effects” on sales while others indicated no impact at all. Furthermore, some companies reported due to “permanent or temporary store closures and stores having reduced business due to damage, shipment delays etc”.

Both the hurricanes, Harvey and Irma, are expected to weight on the GDP growth in the third quarter by around half a point with a boost of a similar magnitude in the fourth quarter, stated TD Economics. The data is as such expected to have further volatility going forward.

“We expect the Fed to largely see through the volatility given its transitory nature”, added TD Economics.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at -24.97. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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