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US Retail Sales Increase Modestly; Consumer Spending Strong

Published on Oct 16 2018 3:09 PM in Retail tagged: Retail / USA / Commerce Department

US Retail Sales Increase Modestly; Consumer Spending Strong

US retail sales barely rose in September as a rebound in motor vehicle purchases was offset by the biggest drop in spending at restaurants and bars in nearly two years.

But other details of the report from the Commerce Department on Monday were upbeat and suggested that consumer spending ended the third quarter with strong momentum, which should provide a boost to economic growth despite anticipated drags from weak exports and a struggling housing market.

"The net result still appears to be a fairly strong quarter for consumer spending growth," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in White Plains, New York.

Month-On-Month Gains

Retail sales edged up 0.1% last month after a similar gain in August. Economists polled by Reuters had forecast retail sales increasing 0.6% in September.

Retail sales in September rose 4.7% from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.5% last month after being unchanged in August. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Consumer spending, which accounts for more than two thirds of U.S. economic activity, is being driven by a robust labor market, with the unemployment rate near a 49-year low of 3.7%. Tight labor market conditions are gradually pushing up wage growth.

Consumption has also been supported by the Trump administration's $1.5 trillion tax cut as well as higher savings. However, economists said the stimulus from the tax cuts was fading and many expected consumer spending to slow sharply in the fourth quarter.

Some also worried a recent stock market sell-off had dented household wealth, which could hurt spending.

"We believe lower tax withholdings provided meaningful lift to consumer spending growth so far this year, but that the incremental support to growth from taxes should be fading," said Michael Feroli, an economist at JPMorgan in New York.

"We look for a more meaningful deceleration (in consumer spending) in the fourth quarter."

Hurricane Damage

While the Commerce Department said it was impossible to determine the impact of Hurricane Florence on the data, disruptions caused by the storm could have hurt sales at restaurants and bars last month.

"Retail sales for food services and drinking places may have been impacted by the hurricane in September, as consumer confidence remained solid during the month," said Ellen Zentner, chief U.S. economist at Morgan Stanley in New York.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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