U.S rate hike expectations fade after disappointing retail sales and PPI data

U.S. retail sales posted the first monthly decline since March in August signaling caution about consumers’ ability to remain the primary driver of economic growth this year. Retail sales fell 0.3 percent in August to a seasonally adjusted $456.32 billion last month, the Commerce Department said Thursday. From a year earlier, retail sales were up 1.9 percent, slowing from July’s annual increase of 2.4 percent.

Consumer spending has been the primary driver of growth so far this year, expanding at more than double the pace of the overall economy during the first half of 2016. Weakness in consumer spending could challenge forecasts expecting gross domestic product to grow at a 3 percent pace in H2 2016.

Separate data showed industrial production fell a more than expected 0.4 percent, versus an expected 0.2 percent. That reaffirms weakness seen in other manufacturing data. ISM manufacturing for August actually showed a contraction in manufacturing activity.

James Knightley, Senior Economist at ING, notes that the US retail sales undershot expectations, while PPI showed pipeline price pressures remain limited, meaning little need for urgent Fed policy action.