If the Federal Reserve is worried about the economy--and judging by yesterday's announcement of a major new bond-buying program it clearly is--the object of its unease is only partly the retail sector. That is because for the second time in as many months, this key economic category advanced strongly, gaining an outsized 0.9% in August. In July, the spending gain, initially estimated at 0.8%, was revised down to an increase of 0.6%. However, the indicated strength was not as formidable as noted by the raw numbers, as we shall see below.

Meanwhile, helping the headline retail number last month was strengthening demand for autos, with motor vehicle and parts dealers seeing a 1.3% increase in sales last month. Also, boosting the retail sector were gains at building materials and garden equipment and supplies dealers. Nice gains also were seen at food service and drinking establishments. However, sales tumbled at electronics and appliance stores and were off nominally at clothing and clothing accessories retailers.

In all, this was the biggest jump in aggregate sales since February, with the gain, however, sparked in large part by higher gasoline revenues, reflecting the sharp jump in oil prices last month. The latest figures on the Producer Price Index and the Consumer Price Index, issued yesterday and this morning, respectively, affirm as much, with energy costs a major contributor to the spike in the PPI and the CPI in August.

Retail sales are a critical component of GDP accounting for some two-thirds of overall economic activity. Hence, the respective 0.6% and 0.9% gains in July and August will be most helpful in underpinning the nation's likely gross domestic product increase in the third quarter. We now estimate that the prospective GDP gain will come in at close to 2%. Unfortunately, as noted, much of the August sales increase was occasioned by the surge in gasoline revenues. In fact, if we back out the gasoline component, we see that sales rose by a more modest, but still not insignificant, 0.3% last month.      

Looking at the report in total, therefore, it was a mixed result. In some respects, this reflects the economy at large, where we are seeing strength in some areas, most recently housing, and weakness in other categories, such as today's just issued industrial production report for last month, which showed a sizable downtick, due in part to the ravages of Hurricane Isaac, which restrained output in the Gulf Coast region at the end of August.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.