The Census Department released August retail sales numbers, which rose 0.6% and remain up 4.8% over the past year.
Perhaps most eye-catching was the revision for July’s report, which saw an increase in sales of 0.3%, instead of the previously reported flat sales.
These numbers are yet another indication that the economy is improving. Looking under the hood, though, there are still some problems with consumer spending.
“The reason the top line number increased is because there are a greater number of people working,” says ITG chief economist Steve Blitz. “But people are still budget constrained due to a lack of growth in wages.”
Consumers spent more on furniture and clothing during the month, which saw sales rise 0.7% and 0.3%, respectively, but cut spending at department stores, which suffered a 0.1% drop.
“You’re seeing luxury and discount stores doing well, but the middle tier doesn’t gain much traction on the heels of a shrinking middle class,” says Chris Christopher, director, U.S. macroeconomics and global consumer at IHS Economics. “Median household income adjusted for inflation is still 8.5% below where it was in 2007.”
According to the Bureau of Labor Statistics, average hourly earnings rose 2.1% over the past year in August, compared to 2% in July. The consumer price index is also up 2% over the past year.
One of the main factors slowing the economic recovery has been a lack of wage growth.
“When consumers increase spending on items they want, they decrease spending on other items they want,” he says. “You’re just shifting things around now.”
Consumer spending is a vital engine of economic growth, often accounting for two-thirds of the nation’s gross domestic product, a broad measure of economic activity.
Still, the rise in retail sales numbers came days before the next FOMC meeting, held September 16-17. Investors continue to watch closely, hoping for more insight over when the Federal Reserve will raise short-term interest rates, which have remained near zero since December 2008.
Some investors fear rising rates will cause more turbulence in the equities market, especially as the central bank ends its bond stimulus in October, which has also propped up the stock market over the past several years. Stocks have been hitting multiple record highs over the past several months.
“I think the data will push Janet Yellen to lean a bit hawkish, more so in the October meeting when they will have yet another jobs report to examine,” says Ken Wills, senior corporate dealer at USForex.
Central bankers tend to follow two schools of thought. Those who favor low interest rates or easy monetary policy, known as doves, while hawks favor tightening policy in an effort to combat high inflation.
- Written by Scott Gamm for MainStreet. Gamm is author of MORE MONEY, PLEASE.