Retail sales edged 0.1% higher in August following upward revisions to what was already a strong July. A drop in spending on vehicles, apparel and at traditional department stores accounted for much of the August weakness. Higher prices at the gas pump were clearly eating into some kinds of spending. Luckily, prices at the pump are now retreating a bit. Spending at big-box discounters and online provided an offset to those losses.

Consumers also opened their wallets to go out to eat and drink at restaurants and bars instead of at home. Spending on services is not included in the retail sales report but anecdotal evidence suggests strong gains in August. The airlines raised prices and fees sharply last month in response to strong underlying demand. Business travel has grown particularly in recent months.

Separately, Hurricane Florence has triggered a surge in spending at grocery and building materials stores as people are rushing to prepare and evacuate. Spending at building materials and furniture stores for September will be strong in its wake, given what looks like significant damage from flooding. The largest hurdle will be escalating materials prices, which have already been pushed up by tariffs.

Bottom Line

Consumers took a bit of a breather in August after starting the third quarter with more momentum than previously estimated. That suggests they will remain in good shape into the third quarter.