U.S. retail sales increased more than expected in August, fueled primarily by back-to-school shopping, even as rising prices and a weakening job market signal growing pressure on consumers.
The Commerce Department reported Tuesday that overall sales rose 0.6% from July, which was also revised up to 0.6%. Excluding volatile automobile sales, which have been affected by President Donald Trump’s tariffs on foreign-made cars, retail sales grew 0.7%.
Several sectors posted gains in August, such as online retailers jumped 2%, clothing and accessories rose 1%, and restaurant sales increased 0.7%. Electronics and appliance stores grew 0.3%, while auto dealers and parts rose 0.5%. Furniture and home furnishings were the exception, falling 0.3%. A separate measure that excludes gas, cars, and restaurants, often used to calculate GDP, also increased 0.7%.
Inflation pressures remain
Retail sales figures are not adjusted for inflation, which rose 0.4% from July to August, faster than the 0.2% increase recorded the previous month. Year-over-year, consumer prices have increased 2.9%, while core inflation, which excludes food and energy, remained at 3.1%. Both figures are above the Federal Reserve’s 2% target, adding complexity to the economic picture.
Additionally, the combination of solid retail sales, rising inflation, and weaker labor data presents a challenging situation for policymakers. Earlier this month, the Labor Department reported that employers added only 22,000 jobs in August, down sharply from July’s 79,000 and below economists’ expectations.
Implications for the Federal Reserve and retailers
Economists expect the Federal Reserve to cut rates at its upcoming meeting, though stronger-than-expected retail data may encourage a more cautious approach. Major retailers report that consumers remain active, though increasingly selective in their spending.
Some sectors are already passing along price increases, yet analysts say August’s data shows that overall consumer spending continues to hold up, providing a buffer against tariff- and inflation-related pressures.
The Commerce Department reported on Tuesday that overall sales increased by 0.6% from July, which was also revised to show a 0.6% rise. Retail sales, excluding the volatile automobile sector affected by President Donald Trump’s tariffs on foreign-made cars, grew by 0.7%.
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