The Economy

August Retail Sales Suggest Hurricane Impact

Sales unexpectedly fell 0.2% last month and economists are trimming GDP growth forecasts for Q3 because of the effects of Hurricane Harvey.
Matthew HellerSeptember 18, 2017

In an early indication of the economic effects of Hurricane Harvey, U.S. retail sales fell unexpectedly in August, with auto sales particularly hard hit.

The Commerce Department said retail sales dropped 0.2% last month following a revised 0.3% increase in July. Economists polled by Reuters had forecast a 0.1% gain in August.

Motor vehicle sales tumbled 1.6%, the biggest decline in seven months. Economists suggested Harvey was to blame for a dip in auto sales at the end of the month and added to declines in discretionary categories such as clothing, electronics and building materials.

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“The early returns from Harvey are trickling in and the news is not good,” Joel Naroff, chief economist at Naroff Economic Advisors, told Reuters. “Economists are likely marking down third-quarter growth and marking up the fourth quarter.”

The Commerce Department said it had received indications from companies that the hurricane had “both positive and negative effects on their sales data while others indicated they were not impacted at all.”

A particular surprise in August was online shopping, with non-store retail sales falling 1.1%, the biggest drop since April 2014.

“One possible, at least logical, explanation is that the 1.8% rise in July non-store retail sales was boosted by the July 11 Amazon Prime Day, so the apparent ensuing weakness is a return to a more normal sales activity,” Ward McCarthy, chief financial economist at Jefferies, wrote in a note.

Core retail sales excluding automobiles, gasoline, building materials and food services fell 0.2% compared to July, suggesting a moderation in consumer spending n the third quarter.

“Despite sluggish wage growth even as the labor market nears full employment, the fundamentals for consumer spending are solid,” Reuters said. “The stock market is near record highs and house prices have maintained their advance, increasing household wealth.”

But economists are also warning that Hurricane Irma could impact retail sales in September.

“I took half a percent off consumer spending in Q3 and added it back to Q4,” Stephen Stanley, chief economist at Amherst Pierpont, told CNBC.