US retail sales increase solidly in boost to economy

US retail sales increase solidly in boost to economy

U.S. retail sales increased more than expected in August, pointing to solid consumer spending that should continue to support a moderate pace of economic growth.

Shoppers ascend and descend an escalator at the King of Prussia Mall, United States' largest r
FILE PHOTO: Shoppers ascend and descend an escalator at the King of Prussia Mall, United States' largest retail shopping space, in King of Prussia, Pennsylvania, U.S., December 8, 2018. REUTERS/Mark Makela

WASHINGTON: U.S. retail sales increased more than expected in August, pointing to solid consumer spending that should continue to support a moderate pace of economic growth.

The report from the Commerce Department on Friday could further allay financial market concerns of a recession, which have been fueled by a year-long trade war between the United States and China as well as slowing global growth.

Still, the Federal Reserve is expected to cut interest rates again next Wednesday to blunt some of the hit from the trade war on the longest economic expansion.

Fed Chair Jerome Powell said last week he was not forecasting or expecting a recession, but reiterated the U.S. central bank would continue to act "as appropriate" to keep the economic expansion, now in its 11th year, on track. The Fed lowered borrowing costs in July for the first time since 2008.

"The winds of recession aren't coming closer to shore if the consumer continues to buy their hearts out," said Chris Rupkey, chief economist at MUFG. "Fed officials are unlikely to cut rates too much deeper as they seek to get out in front of the risks the economy faces acting early instead of being too late."

Retail sales rose 0.4per cent last month, lifted by spending on motor vehicles, building materials, healthcare and hobbies. Data for August was revised slightly up to show retail sales increasing 0.8per cent instead of 0.7per cent as previously reported.

Economists polled by Reuters had forecast retail sales would gain 0.2per cent in August. Compared to August last year, retail sales advanced 4.1per cent. Retail sales have increased for six straight months, the longest such stretch since June 2017.

Excluding automobiles, gasoline, building materials and food services, retail sales climbed 0.3per cent last month after increasing by a slightly downwardly revised 0.9per cent in July. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have jumped 1.0per cent in July.

Consumer spending, which accounts for more than two-thirds of the economy, increased at a 4.7per cent annualized rate in the second quarter, the most in 4-1/2 years.

Economists expect consumer spending will pull back to just below a 4.0per cent rate in the third quarter, which would be more than enough to keep the economy growing at a steady pace, rather than tipping into recession as signaled by financial markets.

The Atlanta Fed is forecasting the economy to grow at a 1.9per cent rate in the third quarter. The economy grew at a 2.0per cent pace in the April-June quarter.

U.S. Treasury yields extended their rise and U.S. stock index futures held gains after the release of the data. The dollar pared losses against a basket of currencies.

IMPORT PRICES FALL

Financial markets have fully priced in a rate cut at the Fed's Sept. 17-18 policy meeting. Most economists expect additional monetary policy easing in October and December. While underlying consumer prices have accelerated in the past three months, inflation is likely to remain benign.

In a separate report on Friday, the Labor Department said import prices dropped 0.5per cent last month amid declines in the cost of petroleum products and food. In the 12 months through August, import prices decreased 2.0per cent after dropping 1.9per cent in July.

Import prices have now declined for five straight months on an annual basis.

Low inflation, the lowest unemployment rate in nearly half a century and about US$1.27 trillion in personal savings are underpinning consumer spending. Even as the economy has been slowing, layoffs have remained low.

Last month, auto sales accelerated 1.8per cent after edging up 0.1per cent in July. Receipts at service stations fell 0.9per cent, reflecting cheaper gasoline. Sales at building material and gardening equipment stores jumped 1.4per cent, the most since January.

Online and mail-order retail sales increased 1.6per cent after shooting up 1.7per cent in July. Receipts at health and personal care stores rose 0.7per cent, mirroring a jump in healthcare inflation in August. Americans also spent more at hobby, musical instrument and book stores, boosting sales 0.9per cent.

But there were pockets of weakness in the retail sales report. Receipts at clothing stores fell 0.9per cent last month and sales at electronics and appliance stores were unchanged.

Furniture sales dropped 0.5per cent, the largest decrease in eight months. Americans also cut back on spending at restaurants and bars, with sales declining 1.2per cent, the most since September 2018.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Source: Reuters

Bookmark