Fundamentals behind U.S. consumer spending remain solid so far in the third quarter

September 25, 2019 – Retail sales (excluding auto sales) growth decelerated in August to a 3.5 percent pace following a solid gain in July. A pick-up in sales at building materials retailers along with non-store retailers (includes e-commerce) was offset by a slowdown in a number of retail categories, including restaurants, gasoline stations, clothing stores and department stores. August prices dropped slightly, relative to the same period last year, largely due to falling gas prices. Confidence is booming among younger consumers, likely due to continued job and wage gains in lower pay industries where many begin their careers. However, these same consumers are also most at risk if the economy slows.

"While job growth is slowing, wage and overall income growth remain solid, which should support another impressive pace of consumer spending in the third quarter,” said Michael Brown, Principal U.S. Economist. “However, we also continue to monitor geopolitical risks for any potential adverse impact on consumer spending."

Other highlights of this report:

• July nominal personal disposable income growth slowed only slightly to 4.5 percent from June’s 4.7 percent. Wage growth remains a key support to overall income growth, rising 0.2 percent month-over-month in July. Average hourly earnings continued to trend higher in August, suggesting continued wage growth momentum.
• Real consumer spending was revised higher to a 4.7 percent annualized pace in the second estimate of gross domestic product (GDP) growth for Q2. Nominal consumer spending accelerated in July to 4.1 percent year over year (YoY), with spending on durable goods and services rising the fastest relative to last year.
• Consumer confidence declined slightly in August, falling less than a point. However, consumer confidence varied by age group – confidence among consumers over 35 either remained flat or fell slightly, whereas confidence among consumers under 35 rose by nearly 10 points.
• The U.S. economy added 130,000 jobs in August, and July’s job growth figures were revised slightly lower. Weakness is due largely to soft job growth, rather than job losses across multiple sectors. Both unemployment and average hourly earnings remained stable at 3.7 percent and 3.2 percent YoY, respectively, which should support continued gains in consumer spending in the third quarter.

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