September 14, 2023 | 09:09
U.S. Retail Spending Powers Down
Excluding costlier fuel, retail sales simmered down in August after a burst of spending earlier this summer. Overall sales jumped 0.6% following a downwardly-revised gain of 0.5% the prior month, with much of the gain reflecting an 11% spike in pump prices. Firmer sales at auto dealers (largely price related it appears) and clothing stores more than offset declines at home furnishing stores. Excluding autos and gas stations from the mix, sales rose 0.2%, ratcheting back from a 0.7% jump in July. The 'control' measure used to estimate consumer spending rose even less at up 0.1% following a 0.7% spurt the prior month (revised down from 1.0% previously). With core consumer goods prices down slightly in August, underlying real retail sales likely rose modestly. However, unit new vehicle sales actually reversed course, suggesting a flat number for real consumer spending in the month, though earlier strength still flags a quarterly acceleration to an above 3% annualized rate from 1.7% in Q2. This supports our current estimate of a 3.2% pickup in real GDP from 2.1% in Q2.
Bottom Line: Despite rising real wages and a rebound in wealth, the mighty consumer seems to have stepped back in August due to high interest rates, costlier fuel, fading excess savings, and slowing job growth. We expect some further loss of spending power and enthusiasm in the next two quarters, resulting in a temporary stalling in demand and the economy early next year. If so, the Fed might be done hiking rates.