United States: Retail Sales and Industrial Production Surprised on the Upside in August

Retail sales continue to show solid growth in the US. August’s result came in well above consensus expectations, which had called for a modest 0.2% gain in total sales. Moreover, August’s increase follows two strong monthly gains. The three-month average is now the highest since June 2022.

What explains this strong performance in sales, despite weak consumer confidence indexes and a seemingly stagnant labour market? First, price effects are clearly at play, inflating the dollar value of sales. Roughly half of August’s sales growth can be attributed to higher prices. Second, elevated inflation expectations among consumers may be prompting some to bring forward purchases before prices rise further. Finally, while confidence remains low, it is higher than in the spring, and uncertainty has eased somewhat over the summer. Combined with the presumed effects of fiscal relief from the “One Big Beautiful Bill,” this may be encouraging households to maintain a healthy pace of spending.

Although growth appears modest, industrial production also exceeded expectations in August. The 0.2% gain in manufacturing is particularly surprising given that both employment and hours worked declined in the sector last month. This is especially true for the auto sector, where production jumped by 2.6% in August. Industrial production has been highly volatile lately, with no back-to-back monthly increases since spring 2024—a trend recently exacerbated by the ups and downs of US trade policy.

August’s data on industrial production and retail sales point to a certain resilience in the US economy, which continues to grow despite elevated uncertainty. It remains to be seen whether this momentum will persist or fade, as seen in the labour market. Today’s figures are unlikely to shift the Federal Reserve’s stance, which is expected to announce a rate cut tomorrow.