US Retail Sales And Industrial Output Suffer Declines Due To Harvey

U.S. retail sales fell in August, and industrial output recorded its biggest drop since 2009, due to the impact of Hurricane Harvey.

According to Reuters, the hurricane — which hit Texas in the last week of August — disrupted activity and could damage economic growth in the third quarter.

“The early returns from Harvey are trickling in, and the news is not good,” said Joel Naroff, chief economist at Naroff Economic Advisors. “Economists are likely marking down third-quarter growth and marking up the fourth quarter.”

Hurricane Irma, which struck Florida last weekend, will also likely have a negative effect on the economy. Fortunately, analysts expect a rebound in the fourth quarter.

According to the Commerce Department, retail sales dropped 0.2 percent last month, the biggest decline in six months. Motor vehicle sales tumbled 1.6 percent, and U.S. retail sales of building materials, electronics, appliances and clothing also fell.

While the Commerce Department said it could not isolate the impact of Hurricane Harvey on retail sales, it did receive indications from companies that the hurricane had “both positive and negative effects on their sales data, while others indicated they were not impacted at all.”

While Harvey most likely played a part in lower sales last month, data for July and June were also revised down, suggesting consumer spending has slowed after steady growth in the second quarter.

The Federal Reserve said in a separate report that industrial production declined 0.9 percent in August — the biggest drop since May 2009, following six straight monthly gains. The Fed attributed about 0.75 percentage points of the decline to storm effects off the Texas coastline that “temporarily curtailed drilling, servicing and extraction activity for oil and natural gas.”

Economists expect industrial output to decline further in September, due to Irma’s impact on utilities.

“Food processing is also going to join the list of the walking wounded, because South Florida grows and processes a lot of food,” said Michael Montgomery, a U.S. economist at IHS Markit.