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U.S. retail sales unexpectedly rise in August; weekly jobless claims fall

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U.S. retail sales unexpectedly rise in August; weekly jobless claims fall Reuters. FILE PHOTO: A shopper talks about handbags at Burberry on 5th Avenue in NEW YORK, U.S., May 24, 2021. REUTERS/Brendan McDermid

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By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales unexpectedly rebounded in August as Americans ramped up purchases of automobiles and dined out more amid lower gasoline prices, but demand for goods is cooling because the Federal Reserve aggressively raises interest levels.

Consumer spending, however, will probably remain supported by persistent strength in the labor market, with other data on Thursday showing the amount of people filing new claims for unemployment benefits the other day fell to the cheapest level in a lot more than 90 days.

Labor market resilience as well as a surprise upsurge in consumer prices in August will probably supply the U.S. central bank ammunition to provide a third consecutive 75-basis-point interest hike next Wednesday.

“Households continue steadily to spend, supported by strong job growth and rising nominal incomes,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, NY. “However, households face headwinds from elevated inflation that’s not yet showing any significant sign of abating.”

Retail sales increased 0.3% last month. Data for July was revised right down to show retail sales falling 0.4% rather than being unchanged as previously reported. Economists polled by Reuters had forecast sales will be unchanged, with estimates which range from only a 0.5% decline to as high as a 0.5% increase.

The national average gasoline price dropped to about $3.82 per gallon in late August after hitting an all-time high just above $5.00 in mid-June, in accordance with data from AAA. Prices at the pump were averaging $3.698 per gallon on Thursday.

Sales at service stations dropped 4.2% last month, while receipts at auto dealerships increased 2.8%. Excluding gasoline and automobiles, retail sales gained 0.3%.

Sales at clothing and general merchandise stores increased solidly, likely boosted by back-to-school shopping. But online and mail-order retail sales fell 0.7%.

Receipts at furniture stores dropped 1.3%, while sales at building material and garden equipment retailers increased 1.1%. Sales at electronics and appliance stores dipped 0.1%. There have been strong gains in sales at hobby, drum and book stores. Receipts at bars and restaurants, the only real services category in the retail sales report, increased 1.1%.

U.S. stocks opened lower. The dollar was largely unchanged against a basket of currencies. U.S. Treasury prices fell.

UNDERLYING DEMAND SLOWING

Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged last month. Data for July was revised lower showing these so-called core retail sales increasing 0.4% rather than 0.8% as previously reported.

Core retail sales correspond most closely with the buyer spending element of gross domestic product. A reliable pace of consumer spending and strong export growth helped to limit the drag on the economy from the moderation in the pace of inventory accumulation in the next quarter.

Last month’s unchanged core retail sales and the downward revision to July data could prompt economists to trim their third-quarter GDP growth estimates, which are mostly below a 2% annualized rate.

GDP contracted at a 0.6% rate last quarter after declining at a 1.6% pace in the January-March period. The economy isn’t in recession, with the income side of the growth ledger showing a 1.4% rate of expansion in the next quarter, because of labor market resilience.

Another report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 213,000 for the week ended Sept. 10, the cheapest level because the end of May.

GRAPHIC: Jobless claims https://graphics.reuters.com/US-JOBLESS/dwvkrxyqzpm/index.html

Regardless of the hand wringing in regards to a possible recession next year because of higher borrowing costs, there’s not been a surge in layoffs. Economists say companies are hoarding workers after experiencing difficulties hiring during the past year because the COVID-19 pandemic forced some individuals from the workforce partly due to prolonged illness due to the herpes virus.

There have been 11.2 million job openings by the end of July, with two jobs for each unemployed person.

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