Another month of falling gasoline prices gave Americans’ wallets some respite in August. That sent consumers back to stores last month.
The Census Bureau reported Thursday that a key measure of U.S. retail sales in August unexpectedly rose 0.3% on a monthly basis, after a revised 0.4% drop in July. Retail sales, which are not adjusted for inflation, rose 9.1% from a year ago.
The continued decline in gasoline prices resulted in a 4.2% drop for the month on expenses at gas stations. Given this volatile component, sales increased by 0.8% over the month. High and persistent food inflation has manifested itself in a Grocery store spending increased 0.2% month over month.
The strong reading, indicating a resilient consumer, is likely to give more ammunition to the Federal Reserve, which has raised interest rates in a bid to bring down the highest inflation in 40 years. Consumer prices in August rose 8.3% from a year ago, the Bureau of Labor Statistics reported Tuesday.
Of the 13 retail spending categories tracked by the Census Bureau, eight rose in August. Spending at food and beverage retailers rose 0.5% for the month and was up 7.2% over the past year. Sales increased at restaurants and bars, and car dealerships jumped 2.8% on the month. Spending on building materials and equipment, clothing and sporting goods also increased.
Clothing stores and department stores “may have been able to get a lot of back-to-school shoppers spending in-store,” said Doug Hermanson, senior economist at Kantar. “Gasoline prices have come down over the last couple of months… From a parent’s perspective, it’s freed up some cash that they didn’t think they had in May or June.”
August spending fell at gas stations as well as furniture retailers, electronics stores, health and personal care stores, and non-store retailers. Non-store sales, a proxy for e-commerce, likely fell in August due to the timing of Amazon Prime Day in July, market watchers suggested.
“Consumer electronics and furniture pull back. These are the channels showing the weight of the housing market… that continue to hit those sectors,” Hermanson said. Data from Freddie Mac revealed that mortgage rates topped the mark up 6% for the week ending Thursday, the highest level since the fall of 2008 and more than double the rate from a year ago.
The retail report suggests that lower gasoline prices were a key factor in helping Americans cope last month. It raises the worrying prospect that a winter spike in gas or home heating costs could trigger a significant reduction, as consumers have less dry powder today than a year ago, when household balance sheets were better. bolstered by savings from closures and government assistance.
“I think consumers react to several things. First, they have dipped into a lot of their savings and are also reacting to high prices for many commodities,” said Luke Tilley, chief economist at Wilmington Trust.
Pump pain exacerbates that, he said. “Gas prices are certainly a challenge for consumers. They act like a tax. If we were to see another spike in gasoline prices, we would expect to see weaker spending in many of these other retail categories.
At its meeting next week, the central bank is expected to raise its benchmark interest rate by 75 basis points (or three-quarters of a percentage point) for the third consecutive time.
“The Fed has gone out of its way to emphasize that it’s going to be data-driven going forward…rather than trying to forecast,” said Ross Mayfield, investment strategy analyst at Baird.
Fed officials, however, will also have to consider cross-currents like the surprising downward revision to July’s retail sales data, which has been recalculated to reflect a 0.4% decline from a reading initially stable. This suggests that the consumer is starting to show some fatigue, analysts say.
“Consumers continue to spend. In many cases, however, they take home less,” Stifel chief economist Lindsey Piegza said in a research note. “With inflation continuing to climb unabated, shoppers are struggling to keep up with high prices that are eroding purchasing power,” she said, adding that changes in spending patterns indicate that consumers are beginning to worry about their financial security.
Ted Rossman, senior industry analyst at Bankrate, said there is evidence that the balance sheets of the wealthiest households are holding up while lower-income families struggle to buy basic necessities, but this economic stress climbs up the income spectrum.
“I think we’re starting to see that increase,” he said. [It’s] erodes people’s savings. We see it in things like credit card balances,” which he says are nearing an all-time high. “There is a cumulative effect to all of this.”