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Retail Sales Dip in August: Another Blow to Fed Rate Hike


U.S. retail sales in August declined more than expected, reflecting a scenario where the consumers are reigning in their spending and casting a doubt over the expected rebound in the economy during the second half of 2016. The dismal sales report came following the soft job addition and contraction in manufacturing and service sectors witnessed last month. Well the economic environment does not seem much conducive now and might leave the Fed officials in dilemma over the rate hike.

The Commerce Department unveiled that sales at retail stores, restaurants and online declined 0.3% to a seasonally adjusted $456.3 billion last month, as auto and gasoline purchases fell. The reading marked the first drop in retail sales since March. Retail sales data for July was also revised up to 0.1% from an initial flat reading.

Excluding automobiles, gasoline, building materials and food services, retail sales were down 0.1% last month. Auto sales declined 0.9%, while receipts at gasoline stations decreased 0.8%. Online retail sales dropped 0.3% in August. However, back-to-school demand did help restaurants and apparel stores to register a sales increase of 0.9% and 0.7%, respectively.

The abovementioned data strongly suggests that consumer spending – accounting for over two-thirds of U.S. economic activity – lost momentum, which otherwise has been one of the pivotal factors driving the economy so far. The Fed will certainly consider the retail sales report while contemplating an interest rate hike in its meeting next week. The Fed raised the benchmark interest rate in December last year, for the first time in nearly a decade.

Undoubtedly, the tussle is still on among the Fed members, as the economic indicators are making things complicated for them to arrive at a decision. Industry experts believe that the Fed may go for an interest rate hike sometime in the year – if not in September, chances of which are slim – only after due consideration of the global as well as domestic economic climate.

Well nothing concrete can be said about the outcome of the next week’s meeting. Instead of finding an answer to this, it will be better to shift your focus on retail stocks that still hold promise. These are stocks backed with a Zacks Rank #1 (Strong Buy) – The Children's Place, Inc. PLCE, Urban Outfitters Inc. URBN, U.S. Auto Parts Network, Inc. PRTS and Tilly's, Inc. TLYS. You can see the complete list of today’s Zacks #1 Rank stocks here.

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