By Harriet Torry and Sarah Chaney
WASHINGTON--American consumers reined in their spending in August, taking a breather after very strong sales growth in July.
Sales at retail stores and restaurants rose 0.1% from the prior month to a seasonally adjusted $509 billion in August, the Commerce Department said Friday.
That was well below the 0.4% increase economists surveyed by The Wall Street Journal had expected. Compared with August a year earlier, sales grew 6.6%.
Still, revised data showed retail sales rose 0.7% in July, up from an initially reported 0.5% increase.
The overall weakness in August was largely due to a drop in auto sales. Sales at motor vehicle and parts dealers dropped 0.8% from the prior month.
Excluding motor vehicles, sales were up 0.3% in August, and excluding gasoline, sales dropped 0.1%. Excluding both categories, sales rose 0.2% last month.
Consumer spending is a key driver of the U.S. economy, representing about two-thirds of economic output.
Spending at grocery stores was flat on the month and Americans increased their spending at bars and restaurants only slightly, by 0.2%.
Gas prices for U.S. drivers were $2.84 a gallon on average in August, down one cent from July, according to the U.S. Energy Information Administration, and consumers spent more at gas stations. In August, sales at gas stations rose by 1.7%, and were up 20.3% from a year earlier.
Retail sales data can be volatile from month to month. Sales at department stores dropped 1% in August, and sales at clothing stores dropped 1.7%.
Sales at nonstore retailers, such as purchases made online or from mail-order catalogs, rose 0.7% and were up 10.4% from August last year.
Online sales helped boost retailers in the second quarter, which was marked by robust consumer spending. Walmart, Target Corp., Home Depot Inc. and Nordstrom Inc. all reported strong sales for the quarter.
One of the last big retailers to report earnings, Kroger Co., said Thursday its sales grew less than expected in its most recent quarter. The largest U.S. supermarket chain by stores and sales said it would sacrifice profit to continue investing in online ordering and other services to compete with Amazon.com Inc. and Walmart Inc.
"We are making those investments and they are substantial and significant," Kroger Chief Executive Rodney McMullen said in an interview regarding competing digitally.
Friday's report from the Commerce Department suggests consumer spending continued to be strong at the start of the third quarter but could be cooling slightly.
The Federal Reserve closely eyes consumer spending data as a gauge of economic growth, and Fed officials pointed to a pick-up in consumer spending as a factor in their decision to raise interest rates in June to a range between 1.75% and 2%. They are widely expected to raise rates by a quarter percentage point again later this month.
The Commerce Department's retail sales report can be found at http://www.census.gov/retail/marts/www/marts_current.pdf.
Write to Harriet Torry at email@example.com and Sarah Chaney at firstname.lastname@example.org (Heather Haddon contributed to this article)