In August 2023, US retail sales experienced a modest increase, contrary to Wall Street's expectations of a decline. According to data from the Census Bureau released on Tuesday, sales edged 0.1% higher during the month, a deceleration from the upwardly revised increase of 1.1% recorded in July. Analysts had forecasted a 0.2% decline, underscoring the unexpected nature of the August figures.
Year-over-year, retail sales rose by 2.1%, reflecting ongoing consumer resilience despite challenging economic conditions. Thomas Feltmate, a Senior Economist at TD Economics, commented on the slower pace of retail spending, noting, "Some slowing in retail spending was expected, particularly after July's outsized gain.
That said, last month's uptick still came in stronger than expected, while revisions to prior months were relatively negligible." The data also revealed a decline in spending on motor vehicles and parts, which fell by 0.1%. After excluding auto sales, retail sales managed a slight rise of 0.1%, which was below analysts' average predictions for a 0.2% increase. Furthermore, spending at gas stations saw a significant drop of 1.2%.
This decline was attributed to a decrease in fuel prices, with prices at the pump falling by 2.9%. Retail sales, excluding automotive and gas, recorded a modest uptick of 0.2%, slightly below the expected 0.3% increase. In terms of specific retail categories, electronics and appliance stores reported a 1.1% drop in sales, while clothing and accessory stores experienced a decline of 0.7%.
On a positive note, nonstore retailers and miscellaneous categories saw growth of 1.4% and 1.7%, respectively, indicating that e-commerce and other non-traditional retail avenues remained robust. Conversely, department stores faced a sales slump of 1.1%. BMO Capital Markets' Senior Economist Sal Guatieri weighed in on the implications of the current retail landscape for Federal Reserve policy.
He stated, "Based on the health of consumer spending alone, the (Federal Reserve) would have little reason for an aggressive start to the easing cycle, and we continue to lean toward a smaller move. However, policymakers have become increasingly worried about the rising jobless rate, and higher credit card and auto loan delinquency rates suggest that not all households are in a spending mood." As the Federal Reserve's monetary policy-setting committee prepares for its meeting, which begins on Tuesday, market participants are keenly awaiting the expected decision on interest rates set for Wednesday.
Currently, there is a 65% likelihood that the central bank will implement a 50 basis point rate cut, while the remaining odds favor a 25-basis-point reduction, as indicated by the CME FedWatch tool..