US retail sales, factory output slump; third-quarter growth forecast cut

Sales were 1.9 per cent higher than a year ago.

The unexpected drop in USA retail sales in August across so many categories is a bummer after an encouraging report from the Census Bureau earlier this week indicating the largest gains in employment and household income since 2007 – growth that should bode well for consumer spending, the us economy’s main driver.

– Receipts declined in eight of 13 retail categories in August. The economy grew at a 1.1 percent rate in the second quarter.

There will be further expectations that consumer-spending momentum is slowing with a net increase in savings rates. Some economists trimmed their third-quarter growth forecasts after the retail report and other figures Thursday.

– Output at factories alone, which makes up about 75 percent of total production, declined 0.4 percent, biggest drop since March. A sharp decline in utilities output was the main reason according to the Federal Reserve board. While many durable goods industries posted declines of almost 1 percent or more, motor vehicle assembly increased.

The Takeaway: American manufacturers are having trouble finding their footing after an extended slump coming into the year that was related to the energy sector’s pullback, bulging inventories and the dollar’s surge. That was the largest one-month decline since January 2015.

Financial markets are pricing in a roughly 12 percent probability of a rate hike next week, down from 15 percent before the data, according to the CME FedWatch tool. Perhaps that’s partly due to the fact that a monetary dove had the last word before yesterday’s blackout period started – the week-long stretch before the Federal Open Market Committee meeting when public commentary from Fed officials is verboten.

Sales fell 0.3%, more than the 0.1% decline economists expected.

Sales at gas stations fell 0.8% last month, reflecting a decline in prices that often takes place near the end of the summer driving season. The four-week average of the so-called continuing claims fell 8,000 to 2.15 million.

Rising incomes and job growth have trickled into consumer spending, supporting economic growth even as a strong dollar and low energy prices have hurt the US industrial sector.

– Philadelphia Fed measure of new orders rose to 1.4 from minus 7.2.