August retail sales disappoint, USA

August retail sales rose by 0.2%, compared to a revised 0.4% in July, the US Commerce Department informed.

August saw the smallest increase since April.

The 0.2% increase in August retail sales was in comparison to the month before. Compared to August 2012, retail sales grew by 4.7%.

The growth in August retail sales was much less than the 0.5% experts had been expecting, according to a Bloomberg survey of 85 economists.

Excluding motor vehicles, sales rose by just 0.1%., compared to 0.6% in July.

Consumers are being held back by higher income tax, lower income growth and a slow job market. Consumer spending represents seventy percent of US demand.

Consumer spending accounted for almost half of the 2.5% GDP (gross domestic product) annual growth rate in the second quarter of this year.

The August retail sales growth data add to other pieces of information that will be considered at the next Federal Reserve meeting on September 17th, when policy makers decide on whether to pump less money into the economy.

Currently, the Fed spends $85 billion every month in bond purchases, aimed at encouraging growth in employment and the economy.

August retails sales – winners and losers

Of the thirteen major retail categories, eight saw increases in August, led by:

• Automobile dealerships – which rose 0.9%, compared to -0.5% (drop) in July. Cars and light trucks sales rose by the fastest rate since November 2007.
• Electronic stores.
• Furniture stores.

Automobile sales tend to be volatile. Experts say this market has been recovering from an extended slump as people replace their aging vehicles.

Sporting goods, clothing and building material retail sales dropped. The -0.9% decline in building material sales signals a slowdown in construction activity.

Unemployment down, income growth slows down

Companies created fewer jobs in August (169,000) than experts had predicted. Even though unemployment went down to 7.3% in August, its lowest level in nearly five years, this summer saw the slowest growth in payrolls in a year.

As the drag on consumer spending caused by tax hikes starts to wane, the Wall St. Journal quotes economists who warn of new headwinds in the form of higher interest rates, budget uncertainty in Washington, and the Middle East turmoil which could push up oil prices.