Retail Sales Rise Again in August, Bucking Economic Slowdown

The retail sales report is the last major economic datapoint before the central bank wraps up its September meeting. (Brandon Bell/Getty Images)

Key Points

About This Summary

• Retail sales exceeded expectations in August, rising 0.6% against the 0.2% forecast.
• Nine of 13 retail categories saw sales gains, led by online retailers which jumped 2%.
• July’s retail sales were revised up to 0.6%, while economists debate the impact of tariffs.

By most accounts, August was a weak month for the U.S. economy. Hiring slowed, unemployment rose, consumer sentiment edged lower, and inflation ticked higher. Consumer spending bucked the trend, however, with retail sales topping expectations in August.

Retail sales increased 0.6% in August from July, according to data released Tuesday by the Census Bureau. Economists polled by FactSet expected a 0.2% increase. Stripping out car and gasoline sales, retail sales rose 0.7%, also higher than forecasts for a 0.4% increase.

Sales rose 5% on an annual basis.

The month’s strength was fairly widespread, with sales rising at nine of the 13 categories the Census Bureau tracks. Retailers may have reaped the benefit of a strong back-to-school season. Sales at nonstore retailers—a proxy for e-commerce—jumped 2% in August from July, while clothing and accessories sales increased 1%, and sales at sporting goods and hobby stores gained 0.8%.

Miscellaneous store retailers, furniture stores, general merchandise stores, and health and personal care stores all notched monthly declines, but still grew year over year.

July’s results were also revised higher to a 0.6% monthly increase from 0.5%.

Augusts’ report suggests that while Americans are worried about the economy and their future job prospects, they continue to spend.

“Consumers say they are gloomy about the economic outlook, but they are still opening their wallets and spending, even on little splurges for themselves and their families,” said Heather Long, chief economist at Navy Federal Credit Union.

Resilient spending by higher-income households is disproportionately lifting consumer activity, wrote Frances Donald, chief economist at RBC Economics, ahead of the report. A record-breaking bull run in equities and soaring home prices have boosted household wealth for many, allowing consumers to spend despite signs the broader economy is softening.

American employers added relatively few jobs throughout the summer months—the labor market actually lost 12,000 jobs in June—and the unemployment rate rose to 4.3% in August, the highest reading since 2021. Recent revisions to 2024’s labor market data suggest the economy added nearly one million fewer jobs in the 12 months through March, marking the biggest revision in estimated annual hiring in decades.

The payroll revisions make the past year of solid retail sales growth “all the more remarkable,” write Glenmede’s Jason Pride and Michael Reynolds ahead of the report.

The chief question now is how long the spree can continue.

It’s also unclear how much of August’s consumer spending was from people pulling forward purchases to get ahead of tariffs, and to what extent the month’s spending increase was due to higher prices, wrote Peter Boockvar, chief investment officer at OnePoint BFG Wealth Partners. The retail sales report isn’t adjusted for inflation, which rose at a 2.9% annual rate in August.

In the coming months, tariff-induced price increases will likely collide with stretched household budgets ahead of the holiday season—a dynamic the Federal Reserve will be keeping a close eye on as it decides on monetary policy in the coming months.

If layoffs were to pick up in the fall, spending is likely to decrease, Long said. But if they don’t, consumers are likely to keep spending throughout the holiday season, helping the economy avoid a recession and “potentially pick up steam in 2026,” she adds.

Recent commentary from company executives—including Bank of America Chief Financial Officer Alastair Borthwick, Wells Fargo CFO Michael Santomassimo, and Walmart CEO Doug McMillon —has supported the resilience of the consumer, pointed out Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors.

“We’re seeing it and hearing it from companies—if you have the right product or the right services, the consumer is spending,” she said ahead of the Tuesday’s data.

The retail sales report was the last major economic datapoint to be released before the central bank wraps up the September meeting of the Federal Open Market Committee. Betting markets have factored in a 96% probability that policymakers cut interest rates by a quarter of a percentage point.

Write to Sabrina Escobar at sabrina.escobar@barrons.com