U.S. retail sales jump 1.2% in August, beating forecasts ahead of expected Fed rate hike
Consumer spending rebounded sharply last month after a July pullback, giving the Federal Reserve more confidence to raise interest rates Wednesday for the first time in three years.
American consumers opened their wallets wider in August, pushing retail sales up 1.2% to $773.9 billion — well above the 0.8% gain economists had expected and a sharp reversal from July's 0.5% decline, according to data released by the Commerce Department.
The report lands one day before the Federal Reserve is widely expected to raise its short-term interest rate for the first time in three years, a move aimed at cooling stubbornly high inflation. Rather than complicating that decision, the spending data appears to reinforce it.
This reaffirms that the economy is more than capable of handling higher interest rates, providing the Fed plenty of scope to hike to get inflation under control.— Bradley Saunders, North America Economist, Capital Economics
Gains were broad-based. Nonstore retailers — primarily online shopping — led the way with a 2.6% rise, while electronics and appliance stores climbed 1.6%. Gasoline stations also posted a significant increase, though retail sales figures are recorded in nominal terms and are not adjusted for inflation, meaning higher pump prices contributed to the headline number.
Stripping out gasoline, the picture still showed genuine consumer strength. Sales in the so-called 'control group' categories — the subset that feeds directly into the formula for gross domestic product — rose approximately 1.4%, according to Morningstar.
Some analysts had anticipated a bounce. July's weaker-than-expected figures were partly attributed to Amazon Prime Day and related promotions shifting from July to June this year, pulling forward spending that would otherwise have shown up in the summer months. August's rebound fits that explanation.
Separate data from Bank of America showed total credit and debit card spending per household rose 0.9% month-over-month in August on a seasonally adjusted basis, following a 0.2% decline in July — broadly consistent with the Census Bureau's figures, according to Morningstar.
Taken alongside August's better-than-expected jobs report, the retail sales data suggests the economy entered the Fed's rate-hiking cycle on firmer footing than July's numbers alone implied. The Fed's rate decision is expected Wednesday.
Why it matters — The spending rebound shows consumers are still driving the economy even under high inflation, giving the Federal Reserve data to support raising interest rates — a move that will affect borrowing costs on mortgages, credit cards, and loans for millions of Americans.
⚠ Not yet confirmed
- August's gain was the largest since March, making it the strongest in five months
- Gains were recorded across 12 of 13 major retail categories in August
- Gasoline stations posted a 3.1% sales increase in August
Reported by pbs.org, tradingeconomics.com, reuters.com, census.gov, fred.stlouisfed.org, axios.com, washingtonpost.com, economics.td.com, morningstar.com
