Headline Retail Sales Beat Belies ‘Concerning’ Core Measures

US retail sales rose in August, but a cursory look under the hood suggested slower consumption.

The 0.3% gain on the headline measure (figure below) defied expectations for a slight decline. The range of estimates, from 67 economists, was -0.5% to 0.6%.

That said, all of the core measures came up short. The ex-autos print underwhelmed, while an unchanged control group print was likewise a disappointment. Consensus expected a 0.5% gain. There may be a “bad news is good news” argument in the context of the Fed, though, especially considering calls for a super-sized rate increase in six days.

Consumption data for July were revised to show a 0.4% drop in sales, underscoring the notion that, despite the headline beat for August, the figures were in fact better characterized as a miss.

Headed into the data, many suggested relief at gas pumps might’ve freed up consumers to spend elsewhere. Gas station receipts tumbled more than 4% from July after a 2.3% decline the prior month.

Eight of 13 spending categories rose in August. Spending at food and drinking places, the lone services sector category in the report, rose 1.1%.

BMO’s Ian Lyngen called the flat read on the control group “concerning,” even more so considering a downward revision to July’s print. “This will be a net negative for real GDP estimates in Q3, which are currently tracking at +1.3%,” he remarked.

On the other hand, the misses on the core aggregates and downward revisions may remove some risk around a potential 100bps hike from the Fed next week.

Following Tuesday’s CPI report, markets priced a meaningful chance of a full-point move from the Committee at this month’s gathering, while terminal rate pricing jumped sharply. Assuming traders (carbon-based and otherwise) bother to look beyond the retail sales headline, they’ll see a mixed picture of the US consumer, at best.

That said, jobless claims were just 213,000 last week, well below the 227,000 consensus expected and the lowest since May. Plainly, that helps make the case for ongoing labor market strength, and thereby a hawkish Fed.