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Retail sales bounce back in August. Why consumers are feeling confident. (+video)

Retail sales grew 0.6 percent in August, hitting a four-month high as consumers grew more confident about the direction the economy is headed. A strong month for the auto industry led retail sales in August, with furniture, building materials, ad electronics also performing well. 

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    A woman passes an active wear display at a J.C. Penney store, in New York. The Commerce Department released retail sales data for August on Friday.
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Retail sales looked like a drag on US economy for much of the summer, as stagnant wages and other financial uncertainties kept shoppers out of stores. But things got a little better in August.

US retail sales increased 0.6 percent last month, according to new figures released Friday by the Commerce Department. That doesn’t seem like much, but it’s the indicator’s best performance in four months. Additionally, retail sales growth for June and July was revised slightly upward, from flat to 0.3 percent and from 0.2 percent from 0.4 percent, respectively. “Today’s report helps put the spending data more back in line with improving fundamentals,” Joshua Shapiro, chief US economist with MFR, Inc, writes via e-mailed analysis.

The growth for August was broad-based: a strong month for auto sales led the charge (up 1.5 percent), with furniture, building materials, electronics, and sporting goods enjoying strong sales as well. The biggest slump was gasoline’s 0.8 percent slide, which was likely due to uncommonly cheap gas prices during the summer months. The only other two categories in the negative were general merchandise and department stores, which fell 0.1 percent and 0.4 percent respectively. Cumulatively, retail sales are up 1 percent for the third quarter of 2014 so far.

Upbeat consumer sentiment data, also released Friday, bolstered analysts’ notions that US consumers are slowly but surely starting to spend money again. The University of Michigan’s Consumer Sentiment index increased two points from August to September, according to preliminary readings.

“From a longer-term viewpoint, consumer confidence and sentiment indices are in a solid uptrend and are well off their recession lows, but absolute levels of these measures are still well below the highs reached before the credit bubble burst,” Shapiro cautions. “Looking ahead, labor market conditions will continue to dominate the outlook for consumer spending, and those conditions will also tend to drive the trend of sentiment and confidence readings.”

Friday’s data signaled strong momentum for economic growth in the third quarter. If such improvements keep speeding along, it could influence policy decisions from the Federal Reserve sooner rather than later, Chris Williamson, chief US economist with Markit, writes via e-mail.

“Viewed alongside recent impressive factory output and business survey numbers, the buoyancy of the consumer in recent months adds yet more evidence to suggest the economy is enjoying another spell of impressive growth in the third quarter,” he says.  “However, while positive for the economy, the data also…adds up to policymakers becoming increasingly minded to start tightening policy sooner than the current expectation of mid-2015 if the dataflow continues to impress in coming months.”

The financial markets were certainly aware of that Friday morning: The Dow Jones Industrial average was down around 25 points by mid-morning, and the S&P 500 was down six points. Stock market performance has had an inverse correlation to economic data in recent weeks. Stocks jumped in morning trading last Friday after the release of an unexpectedly lackluster August jobs report.

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