U.S. retail sales show solid increase as auto-buying jumps

The economy’s biggest pillar—the American shopper—stood steadfast through a summer of mounting economic challenges characterized by soft global growth and trade uncertainty.

Figures released Friday showed August retail sales advanced more than forecast, while consumer sentiment rebounded from an almost three-year low. Treasury yields and stocks moved higher as the data helped reassure investors that households will continue delivering for the economy and keep it moving forward, albeit at a slower pace.

The value of overall sales rose 0.4% from the prior month, led by motor vehicles and online purchases, after an upwardly revised 0.8% increase in July, according to the Commerce Department. The University of Michigan’s index of consumer sentiment increased 2.2 points to 92, higher than the median forecast in a Bloomberg survey of economists.

Spurred by a resilient labor market and income gains, the consumer remains the chief source of firepower for economic growth that’s slowed amid fragile global demand, uncertainty surrounding trade policy and lackluster factory output. The report suggests another solid quarter of household consumption, which grew in the April-June period at the fastest pace since 2014.

“At a time when recession risk dominates most economic discussions, the strength of the U.S. consumer is among the more compelling examples of an economy that is still firing on all cylinders,” Tim Quinlan, senior economist at Wells Fargo Securities, said in a report.

Sales in the closely watched “control group” subset—which some analysts view as a more reliable gauge of underlying consumer demand—increased 0.3%, matching projections. The measure excludes food services, car dealers, building-materials stores and gasoline stations.

In their effort to preserve the longest-running U.S. expansion, Federal Reserve policymakers reduced their benchmark interest rate by a quarter point in July. They’re projected to lower it again next week as a bulwark against the possibility that sluggish global demand and weaker trade spill over into the domestic economy more broadly.

Trade tensions showed some easing this week, with China saying earlier Friday that it’s encouraging companies to buy U.S. farm products including soybeans and pork. The two sides are set to resume face-to-face discussions in coming weeks. Improved chances of an agreement have helped return U.S. stocks to near a record high, even after President Donald Trump imposed levies on a wide range of Chinese goods as of Sept. 1.

The Michigan sentiment survey showed tariffs remain a concern. Some 38% of respondents made spontaneous references to the negative economic impact, the most since March 2018, according to the report.

Nonetheless, consumers were more upbeat in August than a month earlier about current economic conditions and expectations.

While the retail sales report was solid overall, some of the details were more mixed: Seven of 13 major categories showed monthly declines, including restaurants, which posted the biggest drop in almost a year.

Grocery stores, department stores and apparel retailers registered declines in receipts from a month earlier. What’s more, the gain in the control group subset was the smallest in six months, indicating personal consumption will decelerate from the robust second-quarter pace.

On the positive side, spending at automobile and parts dealers climbed 1.8% from the prior month, the most since March, after increasing 0.1% in July. Industry data from Wards Automotive Group previously showed August unit sales rose 0.9% after falling in July to a three-month low.

Non-store sales, which includes online shopping, jumped 1.6%. The category posted a 1.7% gain in July amid Amazon.com Inc.’s 48-hour Prime Day event, which the company said surpassed sales from the previous Black Friday and Cyber Monday combined. The promotion, now in its fifth year, likely drove comparison shoppers to rivals like Walmart Inc. and Target Corp.

Filling-station receipts decreased 0.9%, the report showed, after gasoline prices dropped 3.5% in Thursday’s consumer-price data. The retail figures aren’t adjusted for price changes, so sales could reflect changes in gasoline costs, sales, or both.