US Retail Sales Rose Broadly In August, Sign That Consumer Spending Will Pick Up In Second Half

U.S. retail sales rose solidly in August -- with an upward revision to July’s growth -- suggesting that American consumer spending will continue to pick up this fall and into 2015.

Retail sales account for a third of consumer spending or about a fifth of the economy. The Commerce Department said Friday that retail sales increased 0.6 percent in August from July and 4.8 percent from a year ago as Americans bought cars and other goods, after a revised 0.3 percent gain in July from June. July’s retail sales were previously reported as flat.

“Consumers are not going hog wild, but they are responding to the better labor market by gradually increasing their spending,” said Stuart Hoffman, chief economist at PNC Financial Services Group.

Factoring in inflation of about 2 percent, retail sales rose about an annualized 3 percent, roughly in line with economists’ expectations for the economy’s growth in the second half of the year.

Households spent 0.7 percent more on furniture and electronics from July and 0.9 percent more on leisure goods, as well as 0.3 percent more on clothing and 0.9 percent more on sporting goods, the Commerce data showed. That indicates Americans are confident enough in their finances to up their spending on discretionary items, said Paul Dales, senior U.S. economist for Capital Economics.

“Job gains, moderate wage growth, record-high stock prices, rising home values, low interest rates, easier access to credit, and a general improvement in consumer confidence will all support spending gains going forward,” Hoffman said.

Core retail sales, which exclude cars, gasoline, building materials and food services, increased 0.4 percent in August from July and 4.1 percent over the year. That’s still well short of prerecession levels of about 5.5 percent.

“Wage growth is still fairly modest, even though unemployment is coming down,” said Jeremy Lawson, London-based chief economist of Standard Life Investments. “Someone’s total real income growth, that’s going to be the primary driver of retail sales.”

Still, "it's a solid report" with "a solid amount of growth," he said.