United States: Retail sales soften in August
September 14, 2018
Retail sales expanded 0.1% on a seasonally-adjusted month-on-month basis in August, slowing from July’s upwardly revised 0.7% growth (previously reported: +0.5% month-on-month). The figure was the lowest recorded since January and undershot market analysts’ expectations of a more robust 0.4% print, following solid consumer spending in the second quarter. This could signal that private consumption might be moderating somewhat in Q3, although it is still expected to remain a primary driver of economic growth.
The report from the Department of Commerce showed results across sectors were quite polarized in August. Most notably, sales of motor vehicles and parts continued to exhibit very weak dynamics, falling 0.8% from the previous month and dragging down the overall print. This contraction furthermore comes as the corresponding figures for July and June were revised downwards—to a 0.1% month-on-month contraction in July (previously reported: +0.2% month-on-month) and non-existent growth in June—which signals an even weaker momentum than previously thought. The other poor performers in the August report were clothing stores (-1.7% mom; July: +2.2% mom) and department stores (-1.0% mom; July: +1.4% mom), while furniture store sales remained subdued (-0.3% mom; July: +0.0% mom) and food and beverage store sales were flat (July: +0.8% mom). On the other hand, sales rebounded for sporting goods, hobby, musical instruments and book stores; miscellaneous store retailers; and electronic and appliance stores.
Excluding automobiles and gas, retail sales grew 0.2% in August, down from July’s revised 0.9% increase (previously reported: +0.6% mom) and below market expectations of 0.4% growth.
In annual terms, growth in retail sales inched down to 6.6% in August, down from the revised six-year high of 6.7% recorded in July (previously reported: +6.4% year-on-year). Annual average retail sales growth climbed to 5.5% in August from June’s 5.3%.
Overall, the August data seems to indicate consumer consumption remains robust so far in Q3 but shows signs of waning momentum amid growing headwinds—with motor vehicle sales being a key source of concern which could signal further troubles ahead, given their status as a major staple of durable consumer goods purchases. Particularly, and although the strong labor market should continue to support consumer spending in coming months, the coming new round of tariffs to be imposed by the Trump administration on USD 200 billion of Chinese imports will likely weigh heavily on private spending dynamics in the near- to medium-term. The tariffs will affect many staple consumer goods such as appliances, clothing and furniture, and also impact the value-chain of a number of manufactured goods which depend on China for inputs. Lastly, since tariffs should cause higher inflation, they might push the Fed to tighten its policy stance faster than previously expected, which would again negatively affect consumption dynamics.
Author: Joffrey Simonet, Economist