By Lucia Mutikani
WASHINGTON, Sept 16 (Reuters) - U.S. retail sales rebounded sharply in August as households boosted purchases of a range of goods while also spending more at restaurants and bars, reinforcing the economy's resilience even as consumers grow more anxious about high inflation.
The stronger-than-expected report from the Commerce Department on Wednesday prompted economists to upgrade their gross domestic product growth estimates for the third quarter. Together with other data on Wednesday showing
a surge in import prices last month, strong demand sealed the argument for a widely anticipated interest rate increase from the Federal Reserve later in the day, economists said.
The reports followed data this month showing producer and consumer prices accelerated in August, while the labor market regained its poise after wobbling through much of summer.
"This reaffirms that the economy is more than capable of handling higher interest rates, providing the Fed plenty of scope to hike to get inflation under control," said Bradley Saunders, North America economist at Capital Economics.
Retail sales jumped 1.2% last month, the largest increase since March, after a revised 0.5% drop in July, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would rebound 0.8% after a previously reported 0.6% drop in July.
The decline in July was the first in nine months. Sales increased 6.0% on a year-over-year basis in August.
Last month's increase also partially reflected higher gasoline prices, which lifted receipts at service stations by 3.1%. Households have continued to spend despite stubbornly high inflation because of the oil price shock and supply chain strains from the U.S.-Israeli war with Iran.
Consumers have, however, become more selective and are seeking lower-priced goods. Spending is being supported by steady wage growth and recent stock market gains. Households are also saving less and tapping into their nest eggs.
But with gasoline prices rising sharply this month and inflation-adjusted wages declining, August's retail sales pace is unsustainable. Lower-income households are struggling to keep pace with rising energy and food prices, economists said. Consumer sentiment deteriorated this month.
"More consumers are losing their purchasing power," said Scott Anderson, chief U.S. economist at BMO Capital Markets. "We expect this to be an increasing drag on real consumer spending growth in the fourth quarter and into 2027. Healthy retail sales reports like this one are more dependent than ever on continued household wealth gains."
The broad rise in sales last month was led by a 2.6% increase in receipts at nonstore retailers, likely boosted by households restocking for the new school year as well as the fading drag from an earlier than usual Amazon Prime sales promotion. Sales at clothing stores climbed 0.7%, also likely lifted by back-to-school purchases.
Receipts at vehicle and parts dealers rose 0.6%, while those at furniture stores gained 0.9%. Electronics and appliance store sales jumped 1.6%, and receipts at sporting goods, hobby, musical instrument and book retailers were 1.2% higher.
But receipts at building material and garden equipment retailers fell 0.2%. Sales at food services and drinking places, the only services component in the report, increased 1.2% after edging up 0.5% in July. This category is considered a key measure of household finances.
CORE RETAIL SALES SURGE
Retail sales excluding automobiles, gasoline, building materials and food services surged 1.4% last month, the largest gain since September 2024, after an unrevised 0.4% decline in July. Economists had forecast these so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, would rise 0.4%.
Economists at Goldman Sachs raised their GDP growth estimate for the July-September quarter by 0.5 percentage point to a 3.0% annualized rate. Their counterparts at JPMorgan boosted their estimate to a 3.5% pace from a 2.75% rate. The economy grew at a 1.5% pace last quarter. Growth prospects for this quarter were boosted by a separate report from the Census Bureau showing business inventories jumped 0.8% in July.
Financial markets expected the U.S. central bank to raise its benchmark overnight interest rate by 25 basis points to the 3.75%-4.00% range on Wednesday. Stocks on Wall Street were mostly higher. The dollar gained versus a basket of currencies. U.S. Treasury yields slipped.
A third report from the Labor Department's Bureau of Labor Statistics showed import prices rebounded 0.7% last month amid solid increases in the costs of capital and consumer goods, after declining by 0.3% for two straight months. Economists had forecast import prices, which exclude tariffs, would rise 0.4%.
In the 12 months through August, import prices soared 7.0%, the largest increase since August 2022, after advancing 6.1% in July. The strength in import prices suggested inflation could rise further in the coming months.
The government last week reported accelerations in consumer and producer prices in August. Imported capital goods prices increased 0.9% last month, boosted by higher costs for computers, peripherals and semiconductors, industrial and service machinery as well as telecommunications equipment. They rose 1.0% in July.
Prices of imported computers, peripherals and semiconductors increased 19.1% year-on-year. The artificial intelligence buildout is driving up prices for imported capital goods.
Prices for imported consumer goods, excluding automotives, rebounded 0.5% after two straight monthly decreases. The cost of imported automotive vehicles, parts and engines was unchanged.
Prices of imported fuel slipped 0.1%, declining for a third straight month. Imported food prices edged up 0.1%. The moderation is likely temporary as crude oil prices have risen above $100 a barrel.
Excluding food and fuels, import prices jumped 0.8% after rising 0.3% in July. The so-called core imported inflation increased 5.6% in the 12 months through August.
"Progress on inflation simply isn't good enough," said Oren Klachkin, financial market economist at Nationwide. "After today, we're looking for another 25 basis points hike before year-end ... additional tightening is possible."
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)
