U.S. Retail Sales Rise in August, Beating Expectations 

Retail sales rose by 0.6% month-on-month (m/m) in August, up from the downwardly revised 0.5% (previously 0.7%) reading in July. This was notably above the median consensus forecast calling for a more muted gain of 0.1%.

Trade in the auto sector strengthened on the month rising by 0.3% m/m, relative to a -0.4% m/m decline in July. This largely reflected sales at motor vehicle dealers, which rose 0.4% (erasing a similar decline last month). Meanwhile, sales at automotive parts and accessory stores declined by -0.9% m/m – its first decline since March of this year.

The large gain in headline retail sales was driven by sales at gasoline stations, which soared by 5.2% m/m (the largest increase since March 2022). The rebound at gas stations largely reflects recent upward movements in gas prices. The building materials and equipment category rose by 0.1% m/m, but is down by 4.9% versus a year ago.

Sales in the retail sales “control group”, which excludes the above volatile components (autos, building materials and gas) and is used to estimate personal consumption expenditures (PCE) came in at 0.1% m/m – this was above consensus forecast which called for a -0.1% decline. However, July’s figure was revised lower to show an increase of 0.7% instead of the previously reported 1.0%.

• Among the control group, the largest contribution came from sales at clothing and accessory stores  (+0.9% m/m), health and personal care (+0.5% m/m), food and beverage stores (+0.4% m/m) and general merchandise store (+0.3% m/m).
• The main categories posting declines were sporting goods stores (-1.6% m/m) and miscellaneous stores retailers (-1.3% m/m).

Food services & drinking places – the only services category in the retail sales report – was up 0.3% m/m, the smallest increase since March.

Key Implications

Retail sales continued to pull ahead  in August, although downward revisions to July’s numbers tempered pervious gains. With two months of data in for the third quarter, sales are currently tracking 4.4% annualized for 2023 Q3, notably above the revised 0.4% annualized gain recorded in Q2 (previously 0.6%). This should give a decent boost to consumer spending which continues to defy expectations for a major slowdown.

Even as retail spending continues to post gains, the headwinds facing U.S. consumers continue to gain traction. Notably, the labor market is gradually cooling, taking some of the steam out of consumers’ sails, credit markets remain tight and student loan payments are coming due. Additionally, while overall price gains are moderating, the recent uptick in gasoline prices evident in today’s numbers is causing consumers pain at the pump. Given these confluence of factors, we still expect to see a deceleration in spending towards the end of the year as consumers’ resilience gets tested even more.