US Retail Sales Increase Strongly; Softening Labour Market A Headwind

• U.S. retail sales rose more than expected in August as consumers purchased a range of goods and dined out, though a weakening labour market and rising prices linked to tariffs pose downside risks to sustained spending.
• Retail sales climbed 0.6% last month after an upwardly revised 0.6% gain in July, according to the U.S. Department of Commerce. Economists polled by Reuters had forecast a 0.2% rise following a previously reported 0.5% July increase. Sales were up 5.0% year-over-year. Adjusted for inflation, economists estimated monthly sales rose only 0.2%.
• The Trump administration had argued tariffs would be absorbed by exporting countries, but data show otherwise, with signs pointing to faster inflation ahead. A separate report from the U.S. Bureau of Labour Statistics showed import prices rose for a second consecutive month in August, driven by higher costs for consumer goods, capital goods, and motor vehicles.
• “The lack of any substantial decline in import prices given the surge in the effective tariff rate to roughly 15–16% suggests that those additional costs are being borne nearly entirely by U.S. businesses and consumers,” said Michael Hanson, an economist at J.P. Morgan.
• Meanwhile, the labour market continues to struggle, marked by meagre job gains and rising unemployment as companies hold off on hiring amid an uncertain economic outlook, posing a risk to consumer spending.
• Still, the third straight month of solid sales gains is unlikely to stop the Federal Reserve from cutting interest rates on Wednesday, given widening cracks in the labour market. It may, however, temper the case for more aggressive cuts, economists said.
• The U.S. central bank is expected to deliver a quarter-point rate cut on Wednesday to support the labour market. The Fed had paused its easing cycle in January amid uncertainty about the inflationary impact of import duties.

(Source: Reuters)