Retail Sales Disappoint With 0.2% August Gain

Americans spent more on cars, furniture, health and beauty aids, and restaurants but were otherwise frugal in August as retail sales went up a disappointing 0.2 percent from July, the ""Census Bureau"":http://www2.census.gov/retail/releases/historical/marts/adv1308.pdf reported Friday. Economists had expected sales to increase 0.5 percent. July data, though, was revised upward to show a 0.4 percent gain instead of the originally reported 0.2 percent advance.

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Nonetheless, even the two-month increase was far below expectations for retailers, who had added 44,000 jobs in August on top of 94,100 new jobs in the previous two months.

The weaker than expected retail sales report comes as the Federal Open Market Committee (FOMC) prepares to meet next week; it is widely expected to begin to taper its monetary stimulus program, even though the criteria it established have not been met. The FOMC said it would scale back its $85 billion monthly purchase of mortgage-backed securities and Treasuries or begin to increase the 0-1/4 percent federal funds rate when the unemployment rate dropped to 6.5 percent (now 7.3 percent) and inflation stabilized at 2.0 percent (now about 1.7 percent).

Excluding autos, retail sales grew just 0.1 percent in August ($215 million), the weakest increase since June 2012.

Auto sales rose a solid $705 million (0.9 percent) in August after slipping $405 million (0.5 percent) in July.

Sales at restaurants--which also contributed notably to overall job gains, adding 21,000 jobs in August on top of 58,000 in the previous two months--grew 0.3 percent, or [COLUMN_BREAK]

$156 million, in August after increasing $241 million in July and dropping $628 million in May and June.

Sales at personal care stores rose $139 million (0.6 percent) in August after increasing $258 million (1.1 percent) in July.

According to the Bureau of Labor Statistics, average weekly earnings increased a solid $4.13 in August. Part of that, however, was a recovery after average weekly earnings fell $2.40 in July.

Sales at housing-related retailers--furniture stores, building and garden supply stores, and electronics and appliance stores--were mixed. Furniture store sales increased $76 million, 0.9 percent, and electronics store sales were up $69 million, 0.8 percent. Sales and building and garden supply stores, on the other hand, plunged $247 million (0.9 percent) giving back more than half the $470 million gain reported for July.

The retail sales report is significant for several reasons. In addition to tracking a major portion of consumer spending--which is about 70 percent of the economy--it reflects the influence of homebuying on retail activity. According to the National Association of Home Builders, buyers of new homes spend about $9,500 on their homes in the first year of ownership, while buyers of existing homes spend about $6,500.

The weak sales at housing-related retailers suggest recent homebuyers may have overextended as mortgage rates rose.

Sales at gasoline stations in August were essentially flat, down just $14 million (less than 0.1 percent) compared to July, when they had increased 0.7 percent. The average price of a gallon of gasoline in August, according to the Energy Information Administration, was $3.645, down from $3.661 in July.

The retail sales report is price-driven. Data in the report are ""adjusted for seasonal variation and holiday and trading-day differences, but not for price changes,"" according to the Census Bureau.

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