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Trading  | September 14, 2018

The summer spending spree is officially over.

In August, the US consumer hit the breaks on spending as retail sales tumbled from 0.7% to just 0.1%, well below the 0.5% expected, driven by a decline in auto sales, however following a sharp upward revision to July retail sales from 0.5% to 0.7%.

Core retail sales, ex. auto also missed, rising just 0.3%, below the 0.5% expected, while sales ex autos and gas barely rose by 0.2% in August, down “bigly” from the upward revised 0.9% in July (from 0.6%).

The report also showed that the so-called retail control-group sales – which is used to calculate GDP and excludes food services, auto dealers, building-materials stores and gasoline stations — rose a paltry 0.1%, far below the 0.5% consensus and down from 0.8% revised July print. This means that Q3 GDP forecasts are about to be trimmed.

While Tax cuts and a strong job market had put more money in Americans’ pockets this year, and consumer sentiment remained elevated, it appears that the sugar high from the tax boon is now over despite the recent sharp upward revision in personal savings rates. While household spending, the biggest part of the economy, continues to drive economic growth this quarter, still-tepid pay gains and higher borrowing costs are among reasons why it’s projected to cool from its second-quarter pace.

Curiously, looking at the detailed sales breakdown, only 4 of 13 major retail categories showed decreases.

Under the covers: motor vehicle, furniture, clothing and general merchandise store sales slumped, offset by solid sales for electronics, health and personal products, gasoline, online and miscellaneous store sales.

Of note: clothing stores sales fell 1.7%, the biggest drop since February 2017. In contrast, sales rose 1.7% at filling stations, as Labor Department consumer-price data showed seasonally adjusted gasoline prices increased 3%, the most since April.

Retail sales also got less of a boost from restaurants and bars after three months of outsize gains. Receipts at food services and drinking establishments cooled to a 0.2% increase in August, following an upwardly revised 1.6% in July.

The latest broad miss, following similar disappointments from CPI and PPI, will only add to concerns that the US economy is finally rolling over, with the Citi US Econ surprise index recently sliding into negative territory where it has now joined Europe.

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