Retail Sales in U.S. Drop the Most in Six Months

Retail sales in the U.S. fell unexpectedly during August, in part by being hurt from the impact of Hurricane Harvey on purchases of autos, suggesting moderation during the third quarter in consumer spending.

On Friday, the Department of Commerce said retail sales fell 0.2% during August, the biggest decline over the past six months. July data was revised downward with the previous 0.6% increase reduced to an increase of 0.3%.

Economists polled forecast that retail sales would rise slightly by 0.1%.

Sales of motor vehicles plummeted by 1.6% during August, the largest fall since January, after remaining flat in July.

Harvey, which hit Texas during the final week of August, and left behind unprecedented flooding across Houston, is likely the cause of lower motor vehicle sales.

Auto sales however are expected to increase from the sale of replacement vehicles from those damaged during the storm. Overall retail sales were up 3.2% during August on the basis of year on year, pointing to an underlying strength in demand.

The Department of Commerce said that while it was not able to isolate Harvey’s impact on retail sales, it received indicators from businesses that the storm had positive as well as negative effects in sales data, while some indicated they did not have an impact from the storm.

Excluding auto, gasoline, foodservices and building materials, retails sales dropped 0.2% during August after an increase of 0.6% that was unrevised during July.

The core retails sales as they are called, correspond the closest to the consumer spending component of the country’s gross domestic product. The drop last month suggests consumer spending could slow during the period of July through the end of September.

The weak report for retail sales will likely do little in changing expectations that the U.S. Federal Reserve will announce the shrinking of the $4.2 trillion portfolio it has of Treasury bonds as well as securities that are mortgage backed at its policy meeting September 19 and 20.

The central bank in the U.S. is also expected to increase interest rates in December. It has increased rates twice in 2017. Consumer spending, which represents over two thirds of the economic activity in the U.S., increased at an annualized rate of 3.3% during the second quarter.

That boosted the growth of the GDP to a rate of 3% during the quarter from April through June.

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