September 15, 2022 | 09:05
U.S. Retail Sales: No Gas
Despite a helping hand from cheaper gasoline, there's little doubt that the rising cost of virtually everything else is draining the spending power of the American consumer. Retail sales rose 0.3% in August, failing to retrace a downwardly-revised 0.4% decline in the prior month. Sales are still up 9.1% in the past year, but much of the increase reflects higher prices (CPI +8.3%). Most importantly, the control measure of sales that is used to calculate personal consumption expenditures was unchanged in the month after July's gain was cut in half to 0.4%. For overall sales, surprising gains at auto dealers and building material stores were offset by another plunge in gas station receipts, a slide in furniture sales, and only moderate increases elsewhere. With the core CPI up 0.6% last month, underlying retail sales are likely shrinking in real terms. That's partly due to the pivot toward services spending, but the weakness testifies to the negative impact of fast-rising prices and borrowing costs, which appear to be countering support from strong job and wage gains and extra household savings.
It looks like August real personal consumption will still rise about 0.2% m/m, assuming a decent gain in services spending. This would be consistent with our current estimate of a 1.7% annualized gain in real spending in Q3, in line with the prior quarter's moderate 1.5% advance. However, given mounting headwinds, the risk for consumers is on the downside, suggesting no need to upgrade our 0.6% call for Q3 real GDP growth.
Bottom Line: Flagging retail sales could discourage the Fed from ratcheting up the size of rate increases next week, but likely won't discourage another 75-bp hike given persistently high core inflation.