The Dog Days’ US Retail Sales and Industrial Data

August is usually just the proverbial dog days of summer, when everything feels too hot and we all start hankering for those first whiffs of September cool. This year, it was a little more than that: the first month with all of the Liberation Day tariffs in effect. And now we have the first big economic data releases showing how things went. Overall, they were fine. Stocks have already moved on, but together, the US retail sales and industrial production reports help show what markets were pricing in as they rallied from April’s lows.

Retail sales were particularly strong, rising 0.6% m/m.^[i] This was the third straight monthly rise, and this time, it wasn’t all about auto sales. Those actually slowed from 1.9% m/m in July to 0.4% as the frenzy to buy before tariffs lift prices when model-year 2026 vehicles hit the lot died down.^[ii] Sales excluding autos accelerated from 0.4% m/m in July to 0.7%.^[iii] And the increase was broad based by reporting industry.

Now, retail sales figures aren’t inflation-adjusted, so we can’t know from these data alone whether Americans bought more in volume terms in August. That will have to wait for the Bureau of Economic Analysis’s Personal Consumption Expenditures report, which hits late this month. But as a rough snapshot of what people spent on goods and food services, this is an encouraging report. There is a lot of evidence that when tariff chatter started escalating, folks raced to make purchases before tariffs got embedded in prices. That created a bit of a pothole midyear, which is normal when an expected event pulls demand forward. But now there is mounting evidence the US economy is moving further down the road.

And crucially, demand held up even as reciprocal tariffs took effect in early August. While these probably haven’t shown up immediately in prices, as companies still had pre-tariff inventory on hand, it wouldn’t have surprised us if simply knowing tariffs were in place gave consumers a bit of a mental stumbling block. But it doesn’t appear to have been the case in August, which seems a strong indication that consumers are moving past the issue, in actions if not words (in sentiment surveys, for example). That doesn’t mean all economic headwinds related to tariffs have eased, given uncertainty remains and could weigh on business investment. But at least in this segment, there are signs that society is getting on with it.

Same song, second verse for August industrial production, which rose 0.1% m/m, snapping July’s -0.4% decline.^[iv] Manufacturing’s 0.2% m/m rise erased its small July drop, bringing the level of monthly manufacturing output to its highest since October 2022.^[v] And yes, this dataset is seasonally and inflation-adjusted, so these are pretty good signs of life in a sector that has had some well-documented struggles globally for nearly three years.

There are also some signs that heavy industry’s pipes are losing some tariff-related clogs. While other nations didn’t broadly enact retaliatory tariffs against the US, fear that they would led our trading partners to load up on US-made products earlier this year, too. This created similar potholes in demand for US goods, which improving production suggests are moving into the rearview. More acutely, tariffs and retaliation in China had created temporary supply issues in some automobile components earlier this year, jamming up production. Concerns about potential tariffs on auto parts also put factories in wait-and-see mode. But these situations appear to have eased: Motor vehicle manufacturing jumped 4.5% m/m in August.^[vi] Now, this is a volatile measure, so time will tell whether this is a trend or a blip. But the more uncertainty eases and the industry adapts, the more things should improve.

For stocks, this is all backward-looking. Markets look about 3 – 30 months ahead, and we are in mid-September. August is old news, long since priced in. But all spring and summer as US stocks rallied, we saw numerous warnings that they were somehow ignoring tariffs or getting fooled by a false dawn. Chickens would eventually come home to roost, the story went. But these reports show stocks were pricing in the high likelihood that the US economy would adapt to new costs and trade frictions better than the worst-case scenarios of April projected. That is pretty rational, normal bull market behavior.