By Harriet Torry 

WASHINGTON -- American consumers reined in their spending at restaurants and department stores in September, resulting in the second straight month of weak spending as the holiday season approaches.

Sales at retail stores and restaurants rose a seasonally adjusted 0.1% in September, the Commerce Department said Monday. That undershot economists' expectations for a 0.7% month-over-month increase, and matched the rate of spending in August. Retail sales rose 0.6% in July.

Hurricane Florence, which made landfall in coastal North Carolina in mid-September, may have muddied the data last month. Economists attributed a sharp drop in spending on dining out to the storm. Sales at food services and drinking places fell 1.8% last month, the category's steepest month-over-month drop in nearly two years.

The Census Bureau said it couldn't isolate the effect of the hurricane, although companies in its survey said the storm "had both positive and negative effects on their sales data while others indicated they were not impacted at all."

"The September figures were unquestionably soft, but there was a lot going on," said Amherst Pierpont economist Stephen Stanley in a note to clients, pointing to payback last month from strong retail spending in the spring and summer, and warm weather that may have dampened back-to-school apparel sales.

Retail sales data can be volatile from month to month, and economists said September's spending was likely hindered by one-offs rather than a sudden slowdown in underlying consumer demand, which has been strong in recent months.

"We're still at the moment probably seeing what's the tail end of the tax cut boost," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Measures of consumer confidence have remained high recently, supported by low unemployment and broader economic growth.

Looking ahead, James Bohnaker, an economist at research firm IHS Markit, said the recent selloff in equity markets and rising gasoline prices could cause consumers to think twice about additional discretionary spending in the holiday season for retailers.

"Shoppers have gotten used to having extra money in their bank accounts as a result of the 2018 tax cuts, but that stimulus would be largely diffused by rising gas prices," he said in an analyst note.

Home goods and beauty products maker Helen of Troy Ltd. last week reported higher sales and profit for its second quarter, which ended Aug. 31, but warned earnings could fall in the current quarter due to commodity and freight inflation, and tariffs on goods it imports from China.

"The second half of the year is not without its challenges, including rising input costs and the adverse impact of tariffs," Chief Executive Julien Mininberg said on a conference call last week.

The Atlanta Fed said the latest retail sales data caused it to downgrade its estimate of third-quarter consumer spending, and as a result it lowered its GDPNow real-time growth estimator to 4.0%, down from 4.2% in the Oct. 10 estimate. The Atlanta Fed estimate compares with the 3.6% estimate offered by private forecasting firm Macroeconomic Advisers.

While motor-vehicle sales recovered in September after declining in August, sales fell 0.1% in September when excluding motor vehicles, missing economists' expectations for a 0.4% rise and marking the biggest drop since May 2017.

Retail sales aren't adjusted for inflation, and the stronger dollar may have contributed to the lower sales number by pushing down prices of certain imports like clothing, meaning less money in the cash registers of clothing retailers. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, is up about 4% this year.

Sales at department stores fell 0.8%. Sales at nonstore retailers, such as purchases made online or from mail-order catalogs, increased 1.1% last month and were up 11.4% on the year.

The Federal Reserve closely eyes consumer spending data as a gauge of economic growth, and central bank officials pointed to strong consumer spending as a factor in their decision to raise their benchmark interest rate in September to a range between 2% and 2.25%. They are widely expected to raise the rate again by a quarter percentage point in December.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

October 15, 2018 13:43 ET (17:43 GMT)

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