US retail strength masks cooling consumer confidence and industrial fragility

US retail sales in August exceeded expectations, reflecting a nuanced picture of consumer behaviour and industrial activity, according to ING’s latest economic analysis. Nominal retail sales rose 0.6% month-on-month, outperforming forecasts, while core sales excluding autos, gasoline, food service, and building materials grew 0.7% against a 0.4% prediction.

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“August retail sales were firmer than predicted for August, rising 0.6% month-on-month at the headline level, while ex autos gained 0.7% MoM relative to 0.2% and 0.4% consensus forecasts respectively,” ING noted. Key sectors driving this growth included non-store sales, which rose 2%, clothing up 1%, and eating/drinking out of home gaining 0.7%. Furniture, health, general merchandise, and miscellaneous categories all saw declines.

The August jobs report showed retail employment as one of the few bright spots, with 11,000 jobs added in the sector out of 22,000 overall. Average weekly hours worked increased from 29.8 to 30.0, suggesting modest underlying strength. ING cautioned that nominal gains overstate volume growth, which rose only 0.2% month-on-month when adjusted for inflation. “Retailer profits are being driven by price increases rather than consumers physically buying more items,” the report highlighted.

Despite solid sales, import price data indicate potential margin pressures ahead. “This suggests that those retailers’ margins are likely to come under pressure in the months ahead as corporates face the choice of how much of the cost increase to absorb themselves and how much to pass onto customers,” ING stated. Weak consumer confidence, exacerbated by fears of tariff-induced price hikes and concerns about jobs and income, may slow spending growth to around 1% annualised in the fourth quarter, down from the third-quarter mini-revival.

Industrial production in August rose 0.1%, marginally surpassing forecasts, but historical revisions showed a 0.4% decline in July. Manufacturing output increased 0.2%, while utilities fell 2% and mining rose 0.9%. Despite a 0.9% year-on-year gain in manufacturing, output remains 7.5% below its December 2007 peak, with the sector now accounting for less than 10% of US economic output and only 8% of employment.

The analysis underscores a complex economic environment where nominal retail growth and modest industrial gains coexist with softening consumer confidence and structural manufacturing weaknesses.

James Knightley, Chief International Economist at ING, emphasised the broader implications: the interplay between price-driven retail profits and cautious consumer spending may temper expectations for any significant near-term policy shifts by the Federal Reserve.

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