United States: Retail Sales Rebound

After a more subdued July, US consumers quickly resumed spending. This strength is quite surprising. The 1.2% increase in total sales was well above the consensus forecast of 0.8%. The gap was even wider for sales excluding motor vehicles and gasoline, with the increase coming in at three times the expected pace of 0.4%. This also contrasts with the deterioration in confidence indexes in August caused by the surge in gasoline prices.

Sales growth was fairly widespread across retailer categories. Only department stores and building material and garden equipment dealers recorded monthly declines in August. Gains at motor vehicle dealerships were expected following the new vehicle sales figures released earlier this month. The increase in the value of sales at gasoline stations was, of course, consistent with rising gasoline prices. The effect could be even more pronounced in September, given the sharp increase in prices at the pump in recent days.

Another strong positive contribution came from online purchases, where the 2.6% monthly increase in August was the largest since February 2025. However, it followed a rare decline in July. The pronounced increase in food services and drinking places was particularly surprising, as the end of the FIFA World Cup had suggested a slowdown. This gain, along with increases in other categories, including furniture, electronics and appliance, and sporting goods and hobby retailers, suggests that US households are not yet prepared to rein in discretionary spending.

The August results prompt us to raise our forecast for third-quarter real consumption growth slightly. The increase should remain below the 3.4% annualized pace recorded in the spring, but the rebound in August sales is nonetheless more encouraging than July’s rather weak data. Attention will now turn to how US consumers respond in September. The preliminary University of Michigan consumer sentiment index posted a substantial decline for the current month. Continued increases in gasoline and other fuel prices, particularly diesel, are certainly not helping—in fact, quite the opposite. However, the improvement in the labour market over the past two months provides solid support and suggests that US household resilience is likely to persist.

The surprising strength in retail sales in August is good news for US economic growth. It adds to other fairly positive indicators, including those related to the labour market. Despite another sharp rise in oil and gasoline prices, growth should once again be recorded in the third quarter. This further sets the stage for a likely increase in the Federal Reserve’s policy rates at the meeting concluding today.