Retail Sales Beat Expectations

Retail sales rose more than expected, 0.4% in August, after being revised up slightly for July, which was buoyed by Amazon Prime days and matching discounts. Sales excluding the volatile vehicle category were unchanged for the month. A sharp drop in prices at the gas pump triggered a 0.9% decline in gasoline station sales.

The extra cash consumers had in their pockets showed up in online spending, which jumped 1.6% after posting strong gains in July in response to Amazon. We also saw a large jump in spending at building & garden equipment stores, which has been weak to date.

Spending at discount stores held up while spending at traditional department stores and clothing stores declined. Discount stores now get the lion’s share of back-to-school spending. We will be watching all of these categories closely as we move into Fall when prices at those stores are most at risk of rising in response to the September 1 hike in tariffs on China.

Spending on furniture fell along with discretionary spending at restaurants. Spending on restaurants was up only 1.1% from a year ago, which is surprising given the low cost of gas. Usually people spend more at restaurants and bars when the costs of filling their tanks drops. The drop in spending at restaurants and bars was the largest since September 2018.

Finally, sporting goods stores posted strong gains. I would like to believe that signals a jump in spending on exercise equipment. Event studies on mass shootings, however, show that spending on guns tends to surge as talk about background checks and limits on assault rifles spikes. The mass shootings in early August - two in Texas and one in Ohio - probably helped spending on such items at sporting goods stores.

The control group for retail sales, which feeds into overall consumer spending in the third quarter, came in at a moderate 0.3% pace. That is still enough to keep the consumer driving overall gains in GDP. The concern is that we will see a similar pattern to growth we saw last year when it comes to the consumer, with strong growth mid-year and weakness at the end of the year.

Bottom Line
The details in the August retail sales report were more mixed than overall gains suggest. The consumer is still spending and supporting overall growth, but we are seeing some moderation from the across-the-board gains we saw in July. The only sure thing is the ongoing shift from shopping in stores to online, which represents a shift in preferences more than changes in economic conditions.

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