US retail sales barely rise; import prices drop

US retail sales recorded their smallest gain in six months in August as consumers cut back on purchases of motor vehicles and clothing, but upward revisions to July data likely keep intact expectations of strong economic growth in the third quarter.

Other data on Friday showed the biggest drop in import prices in more than 1-1/2 years in August amid a decline in the cost of fuels and a range of other goods. The weak import price data came on the heels of soft inflation readings in August.

Signs of cooling consumer spending and inflation did not change views that the Federal Reserve will raise interest rates later this month. The US central bank has increased borrowing costs twice this year.

The Commerce Department said retail sales edged up 0.1 percent last month, the smallest rise since February.

Data for July was revised higher to show sales rising 0.7 percent instead of the previously reported 0.5 percent gain.

The modest increase in retail sales suggests that high gasoline prices could be pulling spending away from other categories. Economists polled by Reuters had forecast retail sales increasing 0.4 percent in August.

Retail sales in August advanced 6.6 percent from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales nudged up 0.1 percent last month after an upwardly revised 0.8 percent jump in July. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Core retail sales were previously reported to have increased 0.5 percent in July. Despite the slowdown in core retail sales in August, consumer spending remains supported by a tightening labour market, which is steadily pushing up wages.

Annual wage growth increased at its fastest pace in more than nine years in August and there were a record 6.9 million job openings in July. Spending is also being underpinned by tax cuts and higher savings.

The dollar briefly fell against a basket of currencies on the data, while U.S. Treasury yields rose to session highs.

Weak Auto Sales

The economy is poised for strong growth in the third quarter and this year, but an escalating trade war between the United States and China is casting a shadow on the long-term outlook.

President Donald Trump last week threatened duties on another $267 billion worth of Chinese goods on top of a $200 billion tariff list that is awaiting his decision. Washington already has slapped duties on $50 billion worth of Chinese imports, provoking retaliation from Beijing.

The economy grew at a 4.2 percent annualised rate in the April-June period, the fastest in nearly four years and almost double the 2.2 percent pace set in the first quarter. Growth estimates for the third quarter top a 3.0 percent rate.

Auto sales fell 0.8 percent in August after slipping 0.1 percent in July. Receipts at service stations surged 1.7 percent, likely reflecting gasoline prices, which have risen by about 32 cents per gallon this year according to data from the U.S. Energy Information Administration.

Sales at clothing stores fell 1.7 percent, the biggest drop since February 2017, after accelerating 2.2 percent in July. Receipts at furniture stores fell 0.3 percent and sales at building material stores were unchanged last month.

But there were increases in online and mail-order retail sales and Americans also spent a bit more at restaurants and bars. Spending at hobby, musical instrument and book stores rose after declining for several months.

In a separate report on Friday, the Labour Department said import prices fell 0.6 percent in August, the largest decline since January 2016, after slipping 0.1 percent in July.

The drop in import prices likely reflects a strong dollar, which has gained more than 6 percent this year against the currencies of the United States' main trade partners.

In the 12 months through August, import prices rose 3.7 percent, slowing after surging 4.9 percent in July.

Prices for goods imported from China slipped 0.1 percent in August for a second straight month. Prices for Chinese imports gained 0.2 percent in the 12 months through August.