August Retail Sales Rebound Strongly, Exceeding Expectations

According to Nate Gerze, Economist, Brian S. Wesbury, Chief Economist, and Robert Stein, Dep. Chief Economist at First Trust Portfolios, August retail sales demonstrated the continued resilience of the US consumer. Headline retail sales increased by 1.2% for the month, or 1.4% when including revisions to prior months, outperforming the consensus expectation of a 0.8% rise. On an annual basis, retail sales are up 6.0% year-over-year.

Sales excluding automobiles also performed strongly, increasing by 1.4% in August, or 1.5% with revisions, easily surpassing the consensus forecast of 0.6%. These sales have grown by 6.9% over the past year. The economists note that the 1.2% headline advance was broad-based, with gains seen in eleven of the twelve major categories. Leading the increases were nonstore retailers, gasoline stations, and restaurants & bars. The only category to decline was building materials, which saw a modest 0.2% drop.

First Trust's economists particularly follow "core" sales, which exclude volatile categories like autos, building materials, and gas stations, as this metric is important for estimating GDP. This core measure rose 1.3% in August. The report indicates that if these sales remain unchanged in September, they will be up at a 4.8% annual rate in the third quarter compared to the second quarter average, which is consistent with the firm's view that third-quarter real GDP is growing at approximately a 3.5% annual rate. They also highlight that sales at restaurants and bars jumped 1.2% in August, showing healthy growth over the past five months.

First Trust's analysis acknowledges that while nominal retail sales have climbed 6.0% over the past year, "real" inflation-adjusted sales are up 2.6%. The firm states that this continued consumer resilience, alongside inflation that remains above the Fed’s target, reinforces its expectation that the Federal Reserve will implement a rate hike at its upcoming meeting. In other economic news, the Empire State Index declined to +7.6 in September from +20.6 in August, and import prices rose 0.7% while export prices increased 0.6% in August.

Key terms

1. Retail Sales: A measure of the total receipts of retail stores that sell merchandise and services to consumers.

2. Core Sales: A specific calculation of retail sales that excludes categories considered volatile, such as automobiles, building materials, and gasoline, to provide a clearer picture of underlying consumer spending trends.

3. Gross Domestic Product (GDP): The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

Source: Nate Gerze, CFA – Economist, Brian S. Wesbury – Chief Economist, Robert Stein, CFA – Dep. Chief Economist, First Trust Portfolios — Data Watch. Read the original at ftportfolios.com.