A slowdown in August retail sales does not concern economists, as several said that strong consumer confidence, wage growth and an attractive job market will be enough to deliver strong sales through the next several months despite looming tariffs and impacts from Hurricane Florence. That's according to a new briefing paper from Chris Hudgins and Evan Fallor, analysts at S&P Global Intelligence.

Strong Economic Indicators

U.S. retail sales in August rose 0.1%, a moderate drop-off from the 0.7% increase in sales in July, a 0.2% rise in June sales, and a 1.3% spike in May sales.

Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University's Robinson College of Business, said in an interview that the slowdown was anticipated after a strong stretch of sales late in the spring and early summer.

"I wasn't that surprised," Dhawan said. "Whenever the data is way strong in prior months, then you have to average that in. I would never be worried about one month."

National Retail Federation Chief Economist Jack Kleinhenz was also unconcerned with the August figures, adding that positive economic indicators could make for a strong latter half of the year.

In August, the NRF revised its year-over-year sales growth projection for 2018 to at least 4.5% growth, up from its previous 3.8% to 4.4% upward estimate.

"My view is that we're continuing on track with that forecast," Kleinhenz said in an interview. "I think that high wages, strong consumer confidence and job growth give us a solid base to move forward in the last part of the year."

The U.S. added 201,000 jobs in August, the Labor Department said in its Sept. 7 monthly jobs report. The unemployment rate remained at a low 3.9%, according to Labor, and the average hourly earnings for nonfarm payroll employees rose by 10 cents to $27.16.

The Consumer Confidence Index in August, meanwhile, increased to its highest level since October 2000, according to the Conference Board.

 All of these factors, coupled with boosted discretionary spending from federal tax cuts, have economists feeling optimistic.

The 4.6% rise in sales at food services and drinking places in the three-month period of June-August, over the period of March-May, is a key indicator, Dhawan said.

He said restaurants and apparel retailers have had "remarkable sales" as a result of tax cuts and extra discretionary income.

"When people have more cash in their pockets, they like to eat and buy clothing," Dhawan noted.

The month-over-month rise in August was driven primarily by a 1.7% rise in gas sales, a 0.5% increase in health and personal care stores and a 0.7% monthly and 10.4% year-over-year increase in sales at nonstore retailers, which includes e-commerce, according to a Sept. 14 report by the U.S. Census Bureau.

Tariffs, Hurricane Florence Impact

Kleinhenz, while concerned that the pending imposition of 10% tariffs on $200 billion of Chinese imports could raise consumer prices, said the NRF is hesitant to alter its retail sales forecast due to some of the complexities involved, including impacts on the supply chain and the range of the tariffs.

Those tariffs, set to be imposed Sept. 24, will rise to a 25% rate come Jan. 1, and target a number of consumer goods, including furniture, consumer electronics, and sport and pet products.

 "There is no doubt that depending upon the range of tariffs put on imports it could certainly put upward pressure on consumer prices," Kleinhenz said. "But it's really a difficult projection because we don't have any historical period to draw inferences on what will possibly happen."

Ryan Sweet, director of real-time economics for Moody's Analytics, said the tariffs could actually boost nominal retail sales in the short-term, likely between October and December, as consumers could be forced to pay higher prices on the targeted imported goods from China, driving up total retail sales.

But he warned that as more and more products face the threat of tariffs, particularly if the Trump administration goes forward with tariffs on another $267 billion of Chinese goods, consumers may be unwilling to pony up for higher prices across the board.

Several economists said the impacts from Hurricane Florence, the storm that dumped more than 30 inches of rain this month on parts of North Carolina and South Carolina, is worth watching, though it may not provide as much of a hit to retail sales as some other recent storms.

Unlike the $2.75 billion in retail sales losses that resulted from Hurricane Irma in September 2017 and the $1.5 billion in losses from Hurricane Harvey, the August 2017 storm that pummeled parts of Houston and coastal Texas, the economic impact from Florence will likely be at a more regional level due to a less populated impact zone, both Sweet and Dhawan said. 

Moody's still projects that year-over-year retail sales for 2018 to be at the "higher end" of its current 3.5% to 4.5% forecast.

"The next few months will be pretty choppy," Sweet said. "The hurricane has the potential to move the needle on national retail sales. But overall, at the end of the day, fundamentals win for consumers."