Retail Sales Show Unexpected Drop In August

(RTTNews) - Retail sales unexpectedly decreased in the month of August, according to a report released by the Department of Commerce on Friday, with the drop in sales likely to raise some concerns about the outlook for consumer spending.

The report showed that retail sales fell 0.3 percent in August following a revised 0.5 percent decrease in July. Economists had expected retail sales to increase by 0.3 percent compared to the 0.1 percent decrease originally reported for the previous month.

A notable decrease in sales by gas stations contributed to the unexpected drop in retail sales, with sales by gas stations falling by 2.5 percent due in part to a decrease in gasoline prices.

Excluding the decrease in sales by gas stations, retail sales were unchanged compared to a 0.6 percent decrease in the previous month.

Nonetheless, the report also showed notable declines in sales by electronics and appliance stores, building material and garden supplies dealers, department stores, and non-store retailers.

At the same time, the decrease in sales was partly offset by a 1.9 percent increase in sales by motor vehicle and parts dealers, which rebounded after falling by 4.3 percent in July.

The report showed that August retail sales would have fallen by a more substantial 0.7 percent excluding the increase in auto sales. Excluding auto sales, retail sales rose by 0.3 percent in the previous month.

As mentioned above, the unexpected drop in retail sales is likely to raise some concerns about the outlook for consumer spending, which makes up approximately two-thirds of economic activity.

Last week, the Federal Reserve’s Beige Book said that consumer spending was slow in most of the twelve Fed districts, as consumers concentrated on food and other necessary items while reducing spending on discretionary items.

Several districts experienced a shift in shopping patterns toward discount stores and lower-price brands and away from traditional department and specialty stores.

In other economic news, the Department of Labor released its report on producer price inflation in the month of August on Friday, showing that producer prices fell by much more than economists had been expecting due to a steep drop in energy prices.

The report showed that the producer price index fell 0.9 percent in August following an unrevised 1.2 percent increase in July. Economists had been expecting a more modest decrease by the index of about 0.5 percent.

A 4.6 percent decrease in energy prices contributed to the bigger than expected drop in overall producer prices, with the drop in energy prices coming on the heels of a 3.1 percent increase in the previous month.

The Labor Department added that food prices increased by 0.3 percent in August, matching the modest growth that was seen in July.

At the same time, the report showed that the core producer price index, which excludes food and energy prices, edged up 0.2 percent in August after jumping 0.7 percent in July. The modest increase in core prices came in line with economist estimates.

On an annual basis, the pace of overall producer price growth slowed to 9.6 percent in August from 9.8 percent in July. Meanwhile, core producer prices rose 3.6 percent year-over-year, a slightly acceleration compared to the 3.5 percent annual growth seen in the previous month.

The Labor Department will provide a more complete picture of the inflation environment next Tuesday with the release of its report on consumer prices inflation. Overall consumer prices are expected to come in unchanged, while core consumer prices are expected to edge up 0.2 percent.

While the Federal Reserve is widely expected to leave interest rates unchanged at its meeting next Tuesday, the inflation data could have a notable impact on the outlook for future rate decisions.

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