WASHINGTON (Reuters) -U.S. retail sales increased more than expected in August, but momentum could ease amid labor market weakness and rising goods prices because of tariffs on imports.
Retail sales rose 0.6% last month after an upwardly revised 0.6% advance in July, the Commerce Department's Census Bureau said on Tuesday.
Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, rising 0.2% following a previously reported 0.5% gain in June.
Some of the rise in retail sales last month was probably due to tariff-driven price increases rather than volumes.
The government reported last week that consumer prices increased by the most in seven months in August, with strong rises in the costs of food and apparel among other products. The struggling labor market, characterized by meager job gains and rising unemployment as companies hold off hiring because of an uncertain economic outlook, poses a risk to consumer spending.
The Federal Reserve is expected to deliver a quarter-percentage-point interest rate cut on Wednesday to support the labor market. The U.S. central bank paused its easing cycle in January because of uncertainty over the inflationary impact of import duties.
Retail sales excluding automobiles, gasoline, building materials and food services increased 0.7% last month after an unrevised 0.5% advance in July. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
PULLBACK IN SPENDING IS EXPECTED
"While there is underlying resilience, consumption is slowing," said Sam Bullard, a senior economist at Wells Fargo. "Households still generally have the means to spend, but growing concerns over the labor market suggest that we will likely see a pullback in the pace of spending growth for the remainder of the year."
A survey from the New York Fed on Monday showed household spending, unadjusted for inflation, slipped in August to the lowest level in nearly 4-1/2 years on a year-over-year basis.
Still, more people continued to buy electronics, home appliances, furniture, homes and vehicles as well as undertake home repairs and go on vacations.
Similarly, a Bank of America Institute survey found lower-income households were being impacted the most by the labor market weakness, with their after-tax wages and salaries increasing in August at the slowest pace since 2016.
Bank of America Institute also noted that spending growth was the weakest among younger people and those born between 1965 and 1980, commonly referred to as Generation X.
"The weakening labor market appears to be impacting younger people, particularly because changing jobs no longer results in as big of a pay bump," it said.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
