Consumer Spending Slows, But Remains Positive

August retail sales growth was weaker than expected, rising +.3% MoM (consensus +.5%). Excluding autos, which rebounded slightly last month, sales were even weaker than expected, falling -.4% MoM ( consensus +.2%). The saving grace is that retail sales were revised higher for July rising to +.5% MoM from a previously reported gain of +.3% MoM, and ex-autos being revised up to +.7% from +.4%, as originally reported. Retail sales account for almost half of all consumer spending.

Auto sales rose 2.8% last month for the largest gain in a year. Sales in the housing area were mixed with demand rising for furniture (+.5% MoM, +2.8% YoY) but declining for building supplies (-1% MoM, -1% YoY). Clothing stores (-.1% MoM, +7.1% YoY) and gas stations (-2.4% MoM, -1.5% YoY) also saw declines. Service stations were expected to show reduced sales, as the price of gasoline dropped in August, but clothing demand had looked strong in the back-to-school period. General merchandise sales rose +.3% MoM, and have risen +7.1% YoY, while department store sales softened, falling -.2% MoM. Sales at non-store retailers fell -1% MoM. Food sales at both the grocery store and the restaurant level were flat in August.

Excluding autos and gasoline sales, retail sales fell -.1% MoM in August, the first decline since April. The government uses retail sales excluding autos, gasoline and building materials as an input to GDP. This category saw its smallest rise since April, increasing +.1% MoM. The government uses other sources for the excluded data in calculating GDP.

Consumer spending has been an important component in the economy's growth since the last recession. But their resilience is likely to be tested if employment growth slows further, and the housing market continues to deteriorate. The slowdown in spending is likely to help spur the Fed toward an easing next week.