U.S. retail sales slow, but exhibit underlying strength

U.S. retail sales recorded their smallest gain in six months in August as consumers cut back on purchases of motor vehicles and clothing, but upward revisions to July data kept intact expectations of strong economic growth in the third quarter.

Core retail sales were previously reported to have increased 0.5 percent in July. Despite the slowdown in core retail sales in August, consumer spending remains supported by a tightening labor market, which is steadily pushing up wages.

Annual wage growth increased at its fastest pace in more than nine years in August and there were a record 6.9 million job openings in July. Spending is also being underpinned by tax cuts and higher savings as well as high consumer sentiment.

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“Consumer spending will continue to increase at a sturdy pace through the rest of this year and into 2019, supporting overall economic growth,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh.

The dollar rose against a basket of currencies on the data. U.S. Treasury prices fell, lifting the yield on the benchmark 10-year note back above 3 percent. Stocks on Wall Street were trading slightly lower.

Auto sales fell 0.8 percent in August after slipping 0.1 percent in July. Receipts at service stations surged 1.7 percent, likely reflecting higher gasoline prices.

Sales at clothing stores fell 1.7 percent, the biggest drop since February 2017, after accelerating 2.2 percent in July. The plunge in clothing store receipts likely reflects a sharp drop in apparel prices in August, which was the biggest since 1949.

Sales at furniture stores fell 0.3 percent and receipts at building material stores were unchanged last month.

But there were increases in online and mail-order retail sales and Americans also spent more at restaurants and bars. Spending at hobby, musical instrument and book stores rose after declining for several months.

In a separate report on Friday, the Labor Department said import prices fell 0.6 percent in August, the largest decline since January 2016, after slipping 0.1 percent in July.

The drop in import prices likely reflects the strong dollar, which has gained more than 6 percent this year against the currencies of the United States’ main trade partners.

In the 12 months through August, import prices rose 3.7 percent, slowing after surging 4.9 percent in July.

“This signals a slightly smaller inflationary impact from abroad on domestic prices going forward,” said Jake McRobie, a U.S. economist at Oxford Economics in New York.

Reports this week showed producer prices dropping in August for the first time in 1-1/2 years and consumer prices rising marginally.