Retail sales in the U.S. reversed course in August along with industrial production, both taking a hit due to due to recent storms, as price inflation reared its head, while consumers appeared to be ever resilient.

A Commerce Department report released Friday showed retail sales fell 0.2% last month from July, as motor vehicle sales tumbled 1.6%, the biggest decline since January.

Expectations were that August retail sales would improve 0.1%, according to a consensus estimate from Wall Street analysts.

The decline in auto sales comes as they were unchanged in July, however, they are expected to get a significant boost in the wake of hurricanes Harvey and Irma, which resulted in many vehicles being flooded out.

Also, the 0.6% overall jump in retail sales in July was cut by the department to a 0.3% increase.

So-called “core sales” in August; which exclude automobiles, gasoline, building materials and food services; fell 0.2% following a 0.6% increase in July.

Despite the disappointing month-to-month performance total retail sales in August jumped 3.2% from the same time a year ago.

“In the first of many indicators this fall to be impacted by hurricanes, the August retail sales report showed the surge in gasoline sales was erased by the lost business from other categories in August,” said Eugenio J. Alemán, senior economist at Wells Fargo Securities. “In September, building supply stores will likely see much stronger sales as Houston and the entire state of Florida rebuild and recover from major back-to-back storms.”

Industrial Output Declines For First Time In Six Months

Also on Friday, a measure of the total output from the nation’s factories, mines, and utilities was released, showing it declined 0.9% in August, following six straight monthly gains.

The decline in the Federal Reserve’s Industrial Production Index came as Hurricane Harvey, which hit the Gulf Coast of Texas in late August, is estimated to have reduced the rate of change in total output by roughly three quarters of a percentage point.

The index for manufacturing decreased 0.3% while storm-related effects appear to have reduced the rate of change in factory output in August about three quarters of a percentage point. The manufacturing industries with the largest estimated storm-related effects were petroleum refining, organic chemicals, and plastics materials and resins, according to the Fed.

The output of mining fell 0.8% in August, as Hurricane Harvey temporarily curtailed drilling, servicing, and extraction activity for oil and natural gas. The output of utilities dropped 5.5%, as unseasonably mild temperatures, particularly on the East Coast, reduced the demand for air conditioning.

Despite these lower month-to-month numbers, total industrial production in August was 1.5% above its year-earlier level. Capacity utilization for the industrial sector decreased 0.8% of a percentage point in August to 76.1%, a rate that is 3.8% points below its 1972–2016 average.

With these lower numbers for industrial output, some economists are lowering their third quarter gross domestic product (GDP) expectations, including BMO Capital Markets Economic Research.

It expects the GDP to be at an annual pace of 2% when officials July through September numbers are released, down from its earlier projection of 2.4%. The good news it expects the rate to rise in the fourth quarter as well as the first quarter of 2018 due to rebuilding efforts following hurricanes Harvey and Irma.

Consumer Sentiment Declines But Remains Strong

Both reports were released that same day as a preliminary one for September showed consumer confidence edged downward in early this month due to concerns over the outlook for the national economy.

The University of Michigan Survey of Consumers found consumers' assessments of current economic conditions improved, however, with the Current Conditions Index reaching the highest level since November of 2000.

The two hurricanes had a greater impact on expected economic conditions. Across all interviews in early September, 9% spontaneously mentioned concerns that Harvey, Irma, or both, would have a negative impact on the overall economy, according to Surveys of Consumers Chief Economist, Richard Curtin

Among those who mentioned the hurricanes, the Sentiment Index was 80.2, while among those who did not spontaneously mention either hurricane, the Sentiment Index remained unchanged from last month at 96.8.

“Given the widespread devastation in Texas and Florida, it is not surprising to find these very negative initial reactions, nor would it be surprising if these negative assessments last longer than following most past hurricanes,” he said. “While consumers anticipated slight increases in gas prices and a slightly higher overall inflation rate, those concerns were neutralized by the best assessments of their financial situation in more than a decade.”

Curtin said renewed gains in incomes as well as rising home and equity values have acted to counterbalance the negative impacts from the hurricanes. In other words, given the current resilience of consumers, recent events are unlikely to derail confidence.

Consumer, Wholesale Prices Increase But Shouldn’t Push Interest Rates Higher

All this follows reports earlier in the week showing prices at both the retail and wholesale levels increased in during August.

The Consumer Price Index (CPI) increased 0.4% from the month before, the largest gain in seven months, pushing the CPI annual rate up to 1.9%, both slightly more than analysts were expecting.

A 6.3% jump in gasoline prices help lead the way for the increase, the biggest hike since January. Stripping out volatile food and energy prices from the overall CPI number showed a 0.2% gain in August, twice the rate it was the previous four months.

Not surprisingly, the Producer Price Index (PPI) moved up 0.2% in August despite an expected 0.3% increase. This moved its annual rate to 2.4% after showing an annual pace of 1.9% in July. 

Like consumer prices, the PPI was driven higher by a 9.5% jump in gasoline prices at the wholesale level.

With this upturn in prices, some are wondering if this will push interest rates higher again when policymakers soon meet, especially when you consider such statements they have made in the past.

These latest inflation readings don’t alter expectations for a meeting of the Federal Reserve’s Open Market Committee (FOMC) meeting on Sept. 19 and 20 when policy members are set to talk, according to Josh Nye, economist at RBC Economics Research.

“We already saw little chance of a rate hike, with policymakers instead focusing on implementing their plan to start shrinking the Fed’s balance sheet,” he said. “Our long-held view has been that December would be the timing of the next rate move although markets remain skeptical of even that.”

He said given some FOMC members’ concerns about low inflation, we’ll likely need to see higher CPI readings in the coming months to raise the odds of one more rate hike this year.

Wells Fargo Securities noted there will be three more readings on CPI before the FOMC’s December meeting, but the soft patch hit in prior months is likely to lead to lower estimates of year-end core inflation.

That could be enough for some officials, worried about inflation’s persistent shortfall from the committee’s target, to push out their projections for the timing of the next rate hike.