US retail sales showed surprising strength during the back-to-school season – a sign that Trump’s tariffs haven’t yet cowed shoppers as the Federal Reserve weighs a decision on cutting rates.
Excluding cars, retail sales rose 0.7% in August from the previous month– far above estimates of a 0.4% rise, the Commerce Department said Tuesday. Overall retail sales increased 0.6%.
The upbeat report defied projections of a spending slump last month as hiring slowed and inflation picked up. Consumers have continued to spend big – even as they note tariffs and economic anxiety as major concerns in sentiment surveys.
“Tariff costs and inflation are big concerns for lower and middle-income consumers; the weakness of grocery sales is probably a sign that these consumer groups are retrenching,” Bill Adams, chief economist for Comerica, said in a note Tuesday.
“But affluent consumers are in better shape, and likely fueled the outperformance of overall retail sales and more discretionary categories in August.”
Policymakers have turned their attention to a weakening labor market ahead of their meeting this week. The Fed is expected to cut rates on Wednesday for the first time since December 2024 to encourage economic growth.
Traders bet on 100% odds that the Fed would issue at least a quarter-point cut after its meeting this week, according to CME FedWatch, which tracks 30-Day Fed Funds futures prices.
Nine out of 13 retail categories reported increases in August, led by online retailers, clothing stores and sporting goods thanks to a blowout back-to-school shopping season.
Clothing and accessories rose 1% from the previous month, while spending on sporting goods, bookstores and musical instrument retailers jumped 0.8%.
While wage growth has slowed, many workers’ pay gains are continuing to outpace inflation and some consumers – especially the wealthy – are benefiting from a stock market rally that continues to break records.
Yet Tuesday’s data revealed some cracks in certain retail categories from tariff-related pressures.
Motor vehicle sales rose at a much slower pace in August than the month before. Imported cars and auto parts have been hit hard by President Trump’s tariffs. Used car prices have risen in tandem, as demand has soared for more affordable options.
Sales of furniture – another particularly tariff-sensitive category – fell 0.3% last month.
Building material, garden equipment and supply sales ticked up 0.1% – though it’s down 2.3% compared to the year before as homeowners delay remodeling projects and the housing market has faltered.
Grocery store sales ticked up 0.3% in August from the previous month, rising at a slower pace than inflation in the same category.
US stocks dipped lower on Tuesday as investors took in profits ahead of the Fed’s highly-anticipated meeting.
The Dow Jones Industrial Average fell 0.2%, while the S&P 500 dropped less than 0.1% and the Nasdaq ticked up less than 0.1% by approximately 3:00 p.m. ET.
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