August Retail Sales Jump 1.2% as Shoppers Shrug Off Pump Prices

A rebound that beat forecasts

In August, American consumers went back to spending after a rare stumble in July. The rebound beat forecasts by a wide margin. Retail sales rose 1.2% from July, according to Commerce Department figures released September 16, after a revised 0.5% decline the month before11. Economists surveyed by FactSet had expected 0.7%13. The Census Bureau's advance estimate put August retail and food services sales at $773.9 billion, 6.0% above August 20253. The bureau also narrowed July's decline from an initial 0.6% to 0.5%3.

Forecasters were less unanimous than the headline beat suggests. FactSet's consensus was 0.7%, while Trading Economics and KPMG both cited a consensus of 0.8%89. The difference does not change the story. On either benchmark, shoppers spent more than the professionals expected.

The gain also held up after the Census Bureau's next release. When September data came out in mid-October, the August increase was revised up to 1.3%, and September added another 0.8%6.

Why July looked weak, and why August made up for it

The July dip had been puzzling because consumers had shown little sign of fatigue before it15. Analysts largely agree the cause was the calendar. Michael Pearce, chief U.S. economist at Oxford Economics, called the swing "seasonal noise" tied to the timing of Amazon's Prime Day and the competing promotions other big online retailers run around it2. One industry analysis said Prime Day moved to June 23–26, which pulled online spending into June and left July looking soft10.

Nonstore retailers, mainly online sellers, show the pattern clearly. Their sales rose 2.6% in August after falling 1.7% in July8. KPMG said the August gain was the biggest for e-commerce in more than 18 months9.

The rebound was not limited to online sales. Pearce described gains across most categories as "decent," led by discretionary areas such as restaurants, electronics, and sports and recreation13. Electronics stores rose 1.6%, sporting goods and hobby stores 1.2%, health and personal care 0.9%, and furniture 0.9%8. Clothing stores rose 0.7%, and motor vehicle and parts dealers gained 0.6%4. Restaurants, the only services category in the report, matched the 1.2% headline gain12.

The figure economists watch most closely may be the control group. It strips out food services, autos, building materials and gas stations, and it feeds into GDP calculations. It rose 1.4% after falling 0.4% in July811. KPMG said the result supported its estimate of 3.1% annualized GDP growth in the third quarter, up from 1.5% in the second9.

How much of the gain is just higher prices

These are nominal figures, not adjusted for inflation13, and prices were rising. The Labor Department reported that consumer prices rose 3.4% from a year earlier in August and 0.4% from July, four times June-to-July's 0.1% gain16.

Gasoline is the biggest factor. AAA put the national average for regular at $4.37 a gallon on the day of the report, about 47% higher than before renewed fighting in the Middle East, when gas cost less than $311. Diesel, which matters more for freight, farming and manufacturing, rose even faster, up 68%16. Pearce said higher pump prices also lifted sales at gas stations13. Those sales jumped 3.1% in August8, and one analysis of Census data put them 21.0% above a year earlier10.

The main disagreement in the coverage is over how much real growth remains once prices are accounted for. KPMG takes the optimistic view. Its economists wrote that the inflation-adjusted numbers still look strong, and that gas station sales grew far faster than the 1.7% rise in gasoline prices9. KPMG suggested drivers were filling up ahead of further increases, and that some car buying came early ahead of new auto tariffs9. Light vehicle sales reached a 16.8 million annual rate in August, up from 16.3 million in July9.

Other measures were weaker. The CNBC/NRF Retail Monitor, which uses card data and excludes autos and gas, showed August up only 0.22% for the month and 3.87% for the year10. Producer prices for final demand rose 5.4% from a year earlier10. Grocery store sales grew just 0.5% from a year earlier, well below the 3.4% inflation rate10. That points to households cutting back on food volume rather than spending more freely.

Overall, KPMG's point about the control group holds: the 1.4% gain is too large to blame entirely on prices or the calendar. But the 6.0% yearly gain overstates how much more people are actually buying. Gasoline, early purchases ahead of tariffs and price increases account for a meaningful share of it.

Retailers cut prices with tariff refunds

One unusual factor this year is tariff refunds. Several large chains received government refunds of tariffs they had paid, and retailers reporting quarterly results said shoppers were more selective, while Walmart and Macy's were using some of the refunds to lower prices16. Macy's CEO Tony Spring said the company received $116 million and was using part of it to cut prices on big-ticket items such as furniture and fine jewelry12. Walmart reportedly turned nearly $2.9 billion in refunds into more than 11,000 price rollbacks in its latest quarter10.

The price cuts appear to be shaping where people shop. KPMG said general merchandise stores rose 0.7% as shoppers moved to big-box discounters, while department store sales fell 0.8%, their biggest drop in seven months9. Retailers are spending the refunds on lower prices, and price-conscious shoppers are responding.

The National Retail Federation sees signs of continued demand. Executives said retail sales have run ahead of expectations this year12. They also expect September to be the busiest month of the year for imports at major container ports, when the peak usually comes in July or August16.

The income gap: narrowing or about to widen

Forecasters also disagree about the gap between richer and poorer households, often called the K-shaped economy. NRF chief economist Mark Mathews said that split has been easing in recent months7. In his view, consumers have been both willing and able to spend, though that could get harder if energy costs stay high4.

Pearce expects the opposite. He credits a solid job market with supporting lower- and middle-income spending this year, but predicts a "deeper bifurcation" ahead as gas prices cut into real incomes and leave less money for other purchases13. KPMG's analysis leans toward Pearce. It notes that restaurants serving affluent customers stay full while others struggle, and that record household wealth mainly cushions the richest households9. KPMG also says state tax cuts raised after-tax income in July, which may have helped fund August spending9. Like the spring tax refunds that lifted sales in April and May15, that boost is unlikely to repeat.

Pearce's warning seems the more likely outcome. The supports behind August's spending were temporary: the Prime Day rebound, tax-related income, purchases ahead of tariffs and refund-funded price cuts. Fuel costs, by contrast, are a recurring burden.

The Fed and what happened next

The report arrived on the same day the Federal Reserve raised its benchmark rate by a quarter point to about 3.9%, its first hike in three years11. Strong spending alongside rising inflation makes it harder to argue for waiting. Higher rates could eventually raise borrowing costs on mortgages, auto loans and credit cards11.

September's data supports the concern. Retail sales rose 0.8%, but much of that went to gasoline, and annual consumer inflation rose to 3.7% from 3.4%6. The monthly price increase of 0.6% was the largest in five months6.

August showed that consumers still have the means and the willingness to spend. September showed that a growing share of that money goes to higher prices, especially fuel, rather than to buying more. For retailers heading into the holidays, rising sales figures will not mean much if most of the increase reflects higher prices.