Retail sales fell short of expectations in August, climbing just 0.2% during the month. The advance marked the fifth consecutive monthly sales gain for the sector, but suggests that consumers are still having a hard time justifying more aggressive spending habits. The year-over-year increase declined by 1% to just 4.7%. One relatively bright spot in the report was another strong month for auto sales, which rose 1% in August. Excluding autos, retail sales eked out a disappointingly limited 0.1% increase for the month.
Consumer confidence has been on an upward path since the beginning of the year, although continued improvement in the near-term may prove to be more challenging. Recent disappointing jobs data, rising interest rates, and the faltering stock market may weigh on the consumer mood in the near-term. With household income gains already weighing on spending, stalling confidence could make consumers think twice about spending more, particularly on discretionary items.
While there is some evidence in recent weeks that the economy may be slowing, the prevailing view is that the Fed will still see enough positive momentum to announce a plan to begin trimming its bond purchase program in its post-meeting statement on monetary policy. Whether or not the recently disappointing employment report for August in particular was enough to give them reason for pause remains to be seen, but it appears that the central bank is committed to starting the process soon.
Economists are still pointing to the fourth quarter as a potential point of acceleration for the economy, as the negative impact of fiscal tightening is expected to diminish. Business investment remains elusive, however, and a key missing ingredient to stronger overall growth. The housing market is still growing at a rapid clip, providing relief to the consumer sector who is increasingly able to breathe a sigh of relief that the worst of the housing crisis is receding further in the rear-view mirror.
Nonetheless, it is still the U.S. consumer that holds the trump card for the economy. With employment conditions recently disappointing, a breakout in spending appears unlikely. All of this could result in fourth quarter growth failing to live up to expectations.
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