Retail sales rebound in August, rising 9.1% to outpace inflation

The retail sales released each month by the federal government are not adjusted for inflation, so the year-over-year rise in spending is likely linked in part to the same goods costing more than they did a year ago. Earlier this week, the August reading of the Consumer Price Index showed the inflation rate at 8.3%. So the growth in retail sales still outpaced the rise in prices.

While there has been some month-to-month variation, retail sales have continued to remain resilient during this year’s bout with 40-year-high inflation. However, this trend is also a sign that demand is not falling despite the Fed instituting back-to-back rate hikes of 0.75% that are designed to cool off the economy and bring inflation down.

Ecommerce sales show up in this macro measure in the category of nonstore sales. These sales fell 0.7% month-over-month after the Prime Day month of July, while growing 11.2% year-over-year.

A major driver of the uptick in overall retail sales was the motor vehicle and auto parts category, which was the biggest mover in August with an increase of 2.8% month-over-month and a 6.7% year-over-year increase.

Food services and drinking places also posted notable growth, increasing 1.1% month-over-month and 10.9% year-over-year.

Gas station sales fell 4.2% month-over-month, reflecting the continued dip in gas prices.

Miscellaneous store retailers, which include office, secondhand and furniture stores, grew 1.6% month-over-month and 15.3% year-over-year.

A National Retail Federation measure of retail sales that excludes auto dealers, gas stations and restaurants to focus on core categories showed that retail sales were up 0.1%.

“Household spending remains steady even as costs continue to rise,” NRF Chief Economist Jack Kleinhenz said, in a statement. “Consumers continuing to spend more each month points to the benefits of strong job and wage growth and their use of pandemic savings to help handle persistent elevated prices. Consumers are showing their toughness, but they have limited options and cannot continue if prices do not begin to soften. This retail sales report comes amid mixed signals from the broader economy that show the headwinds against the consumer are strengthening.”

Those mixed signals continued to bear out in other data released this week.

The job market continues to show signs of resilience, despite rate hikes from the Federal Reserve that were expected to result in softening. Weekly jobless claims fell for the fifth straight week to 213,000, according to the US Labor Department. That’s down 5,000 from the 218,000 claims the week prior, which itself was revised downward. It was the lowest level for this metric since May 28.

Meanwhile, there are upstream signs that inflation was easing. The Producer Price Index, which measures wholesale prices of goods before they reach retail, fell 0.1% for the month in August, despite rising 8.7% year-over-year, the Labor Department reported on Wednesday. It was the second straight month of decline after a 0.4% decline in July and a 1% increase in June.

In this measure, decreasing energy prices are having a bigger impact than they are in the Consumer Price Index, where falling gas prices were offset by rising food, housing and medical costs. Three-quarters of the decline in this month’s increase was the result of a 12.7% decrease in gas prices. Backing out food and energy costs, the index showed wholesale prices rose 0.2%.

This week's data is among the latest that the Federal Reserve will consider when it meets next week to determine whether and by how much to raise interest rates as it seeks to bring down inflation.