U.S. retail sales in August grew by 0.6%, surpassing expectations and indicating resilient consumer spending despite economic challenges.

Key sectors such as motor vehicle and parts dealers, restaurants, and bars experienced notable growth, with increases of 0.5% and 0.7%, while grocery store sales rose modestly by 0.3%.

Excluding volatile auto sales, retail sales increased by 0.7%, driven by online shopping (up 2%) and clothing and accessories (up 1%).

However, a weakening labor market is impacting earning power, especially among lower-income and Generation X households, which could dampen consumer spending in the coming months.

U.S. tariffs, which have been in place since January and include duties on steel, aluminum, automobiles, and imports from multiple countries, are expected to eventually impact consumers across various product categories, raising concerns about future inflation.

Despite economic headwinds, consumers are spending thoughtfully, focusing on essentials and reducing discretionary expenses amid signs of slowdown.

Economists warn that rising prices due to tariffs and a sluggish labor market could weaken retail momentum and slow consumer spending later this year.

Consumer sentiment has declined, partly due to trade policy concerns, with the University of Michigan’s sentiment index dropping to 55.4, even as job growth slowed and unemployment rose to 4.3% in August.

Retailers like Walmart and Macy’s have absorbed some tariff costs, delaying significant price hikes, but costs are expected to increase as inventories are replenished.

While overall retail sales are strong, some sectors such as furniture and department stores experienced slight declines, indicating uneven impacts across categories.

Consumers continue to spend on discretionary items like hobbies and dining out, demonstrating resilience despite economic uncertainties.

The Federal Reserve is expected to cut interest rates by 0.25% in the upcoming meeting, partly to support the economy amid signs of a weakening labor market and slow job growth.