Thus far, the recovery had been mostly confined to housing and manufacturing, while the service sector has generally stopped contracting and is showing signs of stabilizing.
Retail sales are part of the very broad service sector, with consumer spending account for 70% of economic activity.
High unemployment and stagnant incomes, coupled with Americans’ desire to repair damaged balance sheets, have limited gains in retail sales for much of the year.
But with consumer confidence in a general upward trend and the cash for clunkers program boosting car sales, retail sales surged 2.7%, and ex-autos, sales were up an impressive 1.1%. Even if a surge in gasoline station sales caused by a spike in gas price is removed, sales still gained a solid 0.6%.
Sales are unlikely to move higher in a straight line, but August’s numbers are encouraging an may finally be signaling that one of the final pieces to the recovery puzzle is falling into place.
The economy now needs to tackle rising unemployment.
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