Retail sales rise a better-than-expected 1.2% in August after shoppers pulled back spending in July

NEW YORK (AP) — Consumers stepped up their spending at a better-than-anticipated pace in August after an unexpectedly sharp pullback in July.

Retail sales rose 1.2% last month after recording a revised 0.5% dip in July, according to Commerce Department data released Wednesday. Economists were expecting a 0.7% gain for the month, according to FactSet.

The decline in July was notable because there had been few signs of fatigue from U.S. consumers. Americans spent heavily during the World Cup and Amazon Prime Day sales this summer. That followed heavy retail traffic in April and May as Americans dipped into their government tax refunds.

Excluding business at gas stations, retail sales rose 1.1% in August. The government figures aren’t adjusted for inflation.

Sales at clothing and accessories stores were up 0.7%, while furniture and home furnishings stores saw a 0.9% increase. Online retailers registered a 2.6% gain.

The data offers only a snapshot of consumer spending and doesn’t include activities like travel and hotel stays. But the lone services category – restaurants – registered a 1.2% gain.

Many Americans continue to spend despite skyrocketing gas prices that have accompanied renewed fighting in the Middle East. The average price for a gallon of regular gasoline rose overnight to $4.37 on Wednesday, according to motor club AAA. That is about 47% more than a gallon cost before the war began, when it cost less than $3.

Diesel, which has an outsized impact because it’s used for shipping, transportation and manufacturing, has risen even faster, up 68%.

The Labor Department reported Friday that consumer prices rose 3.4% last month from a year earlier, and they’re up 0.4% from July, quadrupling the 0.1% registered in the previous month.

Americans have grown more selective about what they buy, according to retailers who posted their quarterly financial results in the past few weeks, but some, like Walmart and Macy’s, are using some of their tariff refunds from the government to lower prices.

Macy’s received $116 million in tariff refunds from the government, Macy’s CEO Tony Spring said, and some of those proceeds are being used to lower prices on certain big-ticket items like furniture and fine jewelry.

Executives at the National Retail Federation, the nation’s largest retail trade group, said that retail sales have been better than expected this year.

Mark Mathews, chief economist at the NRF, also noted he’s seeing a softening of the K-shaped spending trends — the upper part of the K refers to higher-income Americans seeing their incomes and wealth rise while the bottom part points to lower-income households struggling with weaker income gains and steep prices.

“We have a consumer that’s willing to spend, and up until this point, we have had a consumer who’s been able to spend,” Mathews said. “Now looking forward that looks a little bit more challenged because if gas prices remain high, then you know you have to start questioning where the consumer is going to fund that spending growth from.”