The Commerce Department reports that retail sales rose less than expected with a 0.2 percent increase in August. It’s the smallest percentage increase in four months. The news is disappointing because its further evidence that the economy is still unable to gain the necessary momentum for sustainable growth. Bloomberg’s survey of 85 economists ranged from 0.2 percent to 0.9 percent. The median estimate called for a 0.5 percent boost.
Factors like higher payroll taxes, lukewarm job market and minimal income growth have restrained consumers from spending. Consumer expenditures account for more than two-thirds of the U.S. economy.
One positive of the data concerns July’s retail sales figure, originally reported as 0.2 percent, it was revised up to 0.4 percent.
Detail by categories
Excluding auto sales, retail sales rose 0.1 percent compared to a showing of a 0.6 percent increase the previous month. Without the auto sales number, the measurement signals the frailty in the general discretionary spending categories.
The retail sales report evaluates 13 major categories. Data show that eight of the primary groupings increased last month. The three top performers were:
- Auto dealerships – 0.9 percent from a 0.5 percent increase in July
- Electronics – 0.8 percent
- Furniture stores – 0.9 percent
Ward’s Automotive Group release data that show vehicle sales selling at the highest annualized sales rate in nearly six years at 16.02 million units. Here are the three categories with the biggest declines: building materials, -0.9 percent, clothing -0.8 percent and sporting goods, -0.5 percent.
Many economists will agree that even in the face of a payroll tax hike, federal budget cuts and feeble income and wage gains, consumer spending has been the glue holding the American economy together. In the second quarter of 2013, consumer spending made of almost 50 percent of the 2.5 percent annual growth rate recorded for the gross domestic product.
Strong performance in other areas of the economy, mainly home price appreciation and the equity market, has contributed to consumer confidence.
As the effect of budget cuts, tax increase and become less over time, many economists believe that spending will pick up. However, the Thomson-Reuters/University of Michigan consumer-sentiment index decreased in August to 82.1. In July, the index reached its highest reading since prior to the recession (December 2008 –June 2010)
In August,consumer confidence may have taken a hit because of rising interest rates. The concern being that the housing industry, which has been on a roll, will hit a wall because of higher interest rates. Ever looming fiscal issues and higher oil prices may be events that can erode consumer confidence even further.
Alan MacEachin, corporate economist for the Navy Federal Credit Union, anticipates that consumer spending will remain stable and contribute to GDP at the same pace as the first two quarters of 2013.
Federal Reserve response
This week’s report provides a key piece of data for the Federal Open Market Committee (FOMC) members to digest before the commencement of its two-day meeting on September 17. At that time, the FOMC will decide whether to taper its $85 billion a month bond buying program. The program has been instrumental in keeping interest rates low and encouraging consumers and businesses to borrow cheap money to support the U.S. economy and create more jobs.
This article was first published on http://moneyprime.com.