U.S. retail sales unexpectedly rise after drop in prior month

U.S. retail sales unexpectedly rose in August after declining a month earlier, as consumer demand for goods broadly held up but showed signs of moderating amid historic inflation.

The value of overall retail purchases increased 0.3% last month after a downwardly revised 0.4% drop in July, Commerce Department data showed Thursday.

Excluding gasoline, retail sales were up 0.8%. The figures aren’t adjusted for inflation.

The median estimate in a Bloomberg survey of economists called for a 0.1% drop in retail sales.

Eight of 13 retail categories grew last month, according to the report, including a surge in sales at auto dealers.

Purchases at furniture stores, health and personal care stores and non-store retailers declined. The value of sales at gas stations slumped again, reflecting cheaper fuel prices.

While households are breathing a sigh of relief from lower prices at the gas pump, widespread inflation is limiting Americans’ ability to spend on other things – whether that be necessities like food or more discretionary purchases like back-to-school items.

Still, the report suggests consumer spending is far from collapsing.

A separate report Thursday showed applications for U.S. unemployment insurance fell for a fifth straight week, suggesting demand for workers remains healthy despite an uncertain economic outlook.

For the Federal Reserve, the labor market and consumer demand for merchandise are holding up reasonably well in the face of steep interest-rate hikes and historically high inflation, giving policy makers more reason to extend their aggressive increases in borrowing costs.

Data out earlier this week highlighted the scale of the inflation problem facing the central bank, with consumer prices rising by more than forecast in a broad-based advance.

Investors maintained bets that the central bank will raise rates by 75 basis points next week for the third straight meeting, with some chance of a 100 basis-point move.

Grocery store sales grew 0.2% last month amid rising food prices.

The cost of food at home has surged 13.5% in the last year, the most since 1979.

Sales at restaurants and bars, the only services’ component in the report, was up 1.1%, the strongest since April after dropping in the prior month.

In addition to not being adjusted for price changes, the retail sales report primarily focuses on goods, not services.

Consumers have broadly been shifting toward pre-pandemic spending patterns, which means allocating more discretionary dollars toward services like entertainment and travel, and away from the merchandise-heavy tilt of the past two years.

A fuller picture of spending in August, which includes both services spending and inflation-adjusted figures, will be released later this month.

So-called control group sales – which are used to calculate gross domestic product and exclude food services, auto dealers, building materials stores and gasoline stations – were little changed in August after a downwardly revised 0.4% advance in the prior month.

This week, Bloomberg’s MLIV Pulse survey focuses on the best trades ahead of the FOMC meeting.

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