US retail sales, wholesale inflation data point to slow growth

US consumer confidence ebbed early this month and retail sales rose just slightly in August despite strong demand for automobiles and other big-ticket items, the latest indications economic growth slowed in the third quarter.

The lack of momentum in the economy was underscored by other data on Friday showing an energy-led increase in wholesale prices last month, but subdued underlying inflation pressures.

The signs of soft domestic demand are unlikely to deter the Federal Reserve from initiating cuts to its bond-buying program as early as next week, however.

"Demand is probably good enough to spur the Fed to taper asset purchases by a wee amount next week," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index of consumer sentiment fell to 76.8 in September, the lowest since April. Confidence fell amid concerns over high interest rates.

Retail sales increased 0.2 per cent last month as Americans bought automobiles, furniture and electronics and appliances, the Commerce Department said in a separate report.

But auto sales strength appears to be drawing spending power away from other areas as purchases of clothing, building materials and sporting goods fell.

Retail sales, which account for about 30 per cent of consumer spending, were still up for a fifth consecutive month. They had gained 0.4 per cent in July and economists polled by Reuters had expected them to rise 0.4 per cent last month.

Stripping out automobiles, gasoline and building materials, so-called core sales were up 0.2 percent after rising 0.5 percent in July. Core sales correspond most closely with the consumer spending component of gross domestic product.

Though core sales slowed a bit from July, they matched the second quarter's 0.2 percent average monthly gain.

The dollar fell against the euro and the yen after the retail sales report. Prices for U.S. Treasury debt rose.

Little wholesale inflation
In a separate report, the Labor Department said its seasonally adjusted producer price index increased 0.3 percent last month after being flat in July.

Economists had expected prices received by the nation's farms, factories and refineries to rise 0.2 percent in August.

In the 12 months through August, wholesale prices rose 1.4 percent after advancing 2.1 percent in July. August's increase was the smallest since April.

Wholesale prices excluding volatile food and energy costs were unchanged after rising for nine straight months. In the 12 months through August, the so-called core PPI increased 1.1 percent after rising 1.2 percent in July.

August's increase was the smallest since June 2010.

Weak demand and the benign inflation backdrop are unlikely to stop the Federal Reserve from reducing the $85 billion in Treasury and mortgage bonds it is buying each month to keep interest rates low.

Inflation is expected to gradually rise as the economy regains some momentum. Economists expect an announcement on the future of the program could come at the end of next Tuesday and Wednesday's policy meeting.

"Beyond the third quarter, spending momentum should accelerate further as improving labor market fundamentals and further gains in the housing market recovery provide a more favorable backdrop for spending activity," said Millan Mulraine, senior economist at TD Securities in New York.

The retail sales report added to July data on consumer spending, industrial production, housing starts and durable goods orders that have suggested growth took a step back from the first quarter's 2.5 percent annual pace.

Sales at auto dealerships rebounded 0.9 percent last month after falling 0.5 percent in July. Excluding autos, sales nudged up 0.1 percent after rising 0.6 percent the prior month.

Sales at building materials and garden equipment suppliers fell 0.9 percent.

Clothing store receipts declined 0.8 percent, the biggest fall in nearly 1-1/2 years, reflecting weak back-to-school sales. That may not be a good sign for the holiday season.

But there was some encouraging news on third-quarter growth, with another report from the Commerce Department showing businesses inventories rising 0.4 percent in July, the largest increase in six months.

Retail inventories, excluding autos - which go into the calculation of GDP - increased 0.8 percent after slipping 0.1 percent in June. July's increase was the largest since January.

Tepid demand has made businesses cautious about increasing stocks.