* Retail sales in August rose a smaller-than-expected 0.2% though July’s increase was revised up to 0.4% from a previously estimated 0.2%.
* The gain was helped by a 0.9% gain in auto sales; growth excluding this component was up a smaller 0.1%.
* Sales at gasoline stations were unchanged.
* Control retail sales, which excludes sales at auto dealerships, gasoline stations and building material stores (where sales fell 0.9% in the month), rose 0.2% following an unrevised 0.5% increase in July.
* In a separate release, producer prices rose a stronger-than-expected 0.3% following steady prices in July.
Retail sales in August rose a smaller-than-expected 0.2% though this followed an upwardly revised gain in July of 0.4% (previously estimated as 0.2%). Expectations for August were for a 0.5% increase. The increase was helped by a solid 0.9% jump in sales at auto dealerships. Excluding this component, sales rose only 0.1% following an upwardly revised 0.6% gain in July (previously estimated at 0.5%). Sales at gasoline stations were unchanged despite indications of falling gasoline prices.
Expectations of a strengthening in overall retail sales were premised partially on a likely reversal of a sizeable 0.4% drop in sales at building material stores in July. In the event, that decline was revised up substantially to show a robust 1.8% increase. This upward revision was the key component of the stronger overall retail sales gain in the earlier month. The August numbers for building material store sales provided a partial offset to this surge, dropping 0.9%.
The so-called “control” measure, which excludes sales at motor vehicle dealerships, gasoline stations and building material stores, and which feeds directly into the GDP add up, rose a smaller-than-expected 0.2% though this built further on the 0.5% jump in July. Expectations going into the report were for a 0.3% rise in August. The slowing mainly reflected some retracement in various components that showed strong gains in July. For example, clothing sales dropped 0.8% after a 1.0% gain in July while sales at sporting goods stores fell 0.5% after rising 0.8% the previous month.
In a separate report, producer prices for August rose a stronger-than-expected 0.3% following steady prices in July. Expectations had been for prices to rise 0.2%. Most of the pressure came from energy prices rising 0.8% and food prices increasing 0.6%. Excluding these two components, so-called core prices were unchanged and compared to expectations of a 0.1% rise in the month. The year-over-year rate for overall producer prices dropped to 1.4% from 2.1% in July while the annual increase in core prices dropped marginally to 1.1% from 1.2%.
Though retail sales growth moderated in August, it followed a solid increase in July. This is consistent with the outlook that growth in consumer spending volumes continued in Q3 at an annualized 1.9%, up marginally from 1.8% in Q2. This will be sufficient to keep overall Q3 GDP growing close to the economy’s long-run average annualized rate at 2.2% though down from the 2.5% increase recorded in Q2. This pace of overall GDP growth is likely sufficiently strong to persuade the Fed to start to reduce the pace of asset purchases coming out of the September 17-18 FOMC meeting. Our expectation is that asset purchases will likely be reduced by $10B from the current rate of $85B per month. Further reductions are likely on signs of strengthening economic growth through the end of this year and early 2014.
RBC