US consumers keep spending despite rising prices

U.S. consumers continue to spend, despite rising prices, contributing to economic growth, according to the latest government data. Retail sales increased by 1.2% in August, surpassing expectations, and were revised upward from a 0.5% decline in July, according to the Commerce Department. Economists had predicted a 0.7% gain for the month.

The July decline was surprising, as consumers had shown no signs of fatigue during the World Cup and Amazon Prime Day sales this summer, which followed strong retail sales in April and May due to tax refunds.

Excluding gas station transactions, retail sales rose by 1.1% in August, demonstrating the resilience of American consumers. The figures do not account for inflation. Consumer confidence took another hit in July, as measured by the latest Conference Board reading. This strong spending report comes as the Federal Reserve is expected to raise its short-term interest rate for the first time in three years to combat high inflation.

Much of the August retail strength can be attributed to a bounce back in nonstore sales, which fell sharply in July, largely due to seasonal factors like Amazon's Prime Day and other major retailers' promotions. Even with these factors considered, most spending categories saw solid gains, led by sectors like food services, electronics, and sports and recreation.