​Retail Sales Drop May Help Keep Fed on Hold

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Dan Weil | FlashRatings | Thursday, September 15, 2016 1:44 PM EDT
U.S. retail sales unexpectedly slipped 0.3 percent in August, the first decline in five months, raising questions about the strength of the economy. And those questions could help the Federal Reserve to decide against raising interest rates at its meeting next week.

Sales in eight of the 13 retail categories fell last month, including a 1 percent decline for autos. “This is not a good report for the most part,” Chris Christopher, director of consumer economics at IHS Global Insight, told Bloomberg.

Consumer spending represented the strongest component of the economy in the first half of the year, advancing at more than twice the rate of GDP. So a slowdown in consumer spending would signal trouble. 

But the Commerce Department retail sales data don’t include spending on services, which make up about two-thirds of personal consumption. The Department’s more comprehensive personal consumption data showed that expenditures increased 0.3 percent in July. The August numbers will be released at the end of this month.

Christopher remains optimistic about the consumer sector, despite the retail sales data. “The consumer’s doing relatively well. Even with these numbers, it’s one of the strongest parts of the economy,” he said. “There’s modest inflation, real disposable income gains are relatively robust, and they feel pretty confident.”

That strength is partly why the Atlanta Fed forecasts economic growth of 3.3 percent for the third quarter.

As for the Fed, the federal funds futures market indicates only a 12 percent chance of a rate hike this month and a 46 percent chance by year-end.