(Adds fed’s Beige book, updates markets)

Retail sales fell 0.3% in September

Core retail sales unchanged; August unchanged at 0.3%

Lucia Mutikani

WASHINGTON, Oct 16 (Reuters) – U.S. Retail sales fell for the first time in seven months in September, suggesting manufacturing-led weakness could spread to the broader economy, keeping the door open for the Federal reserve to cut interest rates again later this month.

The Commerce Department’s downbeat report on Wednesday came on the heels of data this month showing moderation in job growth and service sector activity in September. Signs of cracks in the economy’s mainstay ahead of the holiday season could further fuel financial market fears of a sharper slowdown.

The economy is currently hamstrung by a 15-month trade war between the United States and China that has soured business sentiment, leading to a reduction in capital spending and a downturn in manufacturing.

“This morning’s report solidifies concerns about the consumer’s inability to sustain the economy alone,” said Lindsay Piegza, chief economist at Stifel in Chicago. “With business investment declining and manufacturing activity deteriorating, many investors shrugged off fears of a slowdown as consumers continue to spend.”

Retail sales fell 0.3% last month as households cut spending on cars, building materials, Hobbies and online shopping. It was the first fall since February. The August data was revised to show retail sales growth of 0.6% instead of 0.4% as previously reported.

Economists polled by Reuters had forecast retail sales rising 0.3 percent in September. Compared with September last year, retail sales increased by 4.1%.

Excluding cars, gasoline, building materials and food services, retail sales were unchanged last month after advancing an unevaluated 0.3% in August. These so-called core retail sales are most closely related to the consumer spending component of gross domestic product.

A drop last month and an unanticipated gain in August in core retail sales prompted economists to cut their estimates for third-quarter consumer spending growth to about 2.5 percent year-on-year from a 3.0 percent pace. Consumer spending, which accounts for more than two-thirds of the economy, increased by 4.6% in the second quarter, the most in 1-1 / 2 years.

That, along with another Commerce Department report showing commercial inventories were unchanged in August, led economists to lower their third-quarter GDP forecasts to a range of 1.2% to 1.9%.

The slowdown was also highlighted by the fed’s third report describing growth at a “modest and modest pace,” based on anecdotal business activity information gathered from U.S. Central Bank contacts across the country or before October 7.

In April-June, the economic growth rate was 2.0%, slowing from the first quarter of 3.1%. The government will publish its GDP for the third quarter at the end of this month.

Some economists have suggested that the cooling in hiring, marked by the smallest three-month average increase in private employment in seven years in September, is likely making Americans more cautious about spending.

Others believed the strike of about 48,000 General Motors workers was a factor. GM and the United auto workers Union reached a tentative deal Wednesday to end the month-long strike.

The national retail Federation laid the blame for tensions in trade and difficulties, eclipsing the seasonal fluctuations of these end of summer and the start of the new academic year. Retailers also said the early labor Day holiday may have pulled in August some purchases that normally occur in September.

The dollar fell to a four-week low against a basket of currencies, while U.S. Treasury prices rose. Stocks are trading lower on wall street.

PREDEE Decelerate UPDATE

Although President Donald trump announced a truce in a trade war with China last Friday that delayed additional tariffs due this month, economists say the longest economic growth on record remained in jeopardy without all import duties rolling back .

Trump on Wednesday said he was unlikely to sign a trade agreement with Beijing before meeting with Chinese President XI Jinping at the APEC forum in Chile next month.

The international monetary Fund warned on Tuesday that a trade war between the US and China would cut global growth in 2019 to its slowest pace since the 2008-2009 financial crisis, and expressed caution about the so-called trump 1 trade agreement, saying more details were needed.

Growth is also limited by the fading stimulus from last year’s $ 1.5 trillion tax cut package.

“The Outlook is for a further slowdown in household spending,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “With job growth, wage increases and hours worked easing back, the revenues needed to maintain strong consumption simply do not exist.”

With consumer spending slowing, a full trade agreement still elusive and details of Britain’s exit from the European Union unclear, many economists expect the fed to cut interest rates at its October 29-30 policy meeting to keep expansion, now in its 11th year, on track.

The US Central Bank cut rates in September after cutting borrowing costs in July for the first time since 2008.

Retail sales in September were weighed down by a 0.9% fall in car sales, despite lower loan rates. It was the biggest drop in eight months and followed a 1.9% acceleration in August. Receipts at gas stations fell 0.7%, likely reflecting cheaper gasoline.

Sales at electronics and home appliance stores remained flat, receiving no boost from the launch of Apple’s new iPhone model. Sales at building materials stores fell 1.0%. Retail sales online and by mail fell 0.3%, the highest since December 2018. This followed a 1.2% increase in August. The expenses in the hobby, musical instrument, and book stores fell 0.1%.

But receipts at clothing stores rebounded 1.3 percent last month after falling 0.7 percent in August. Sales at furniture stores rose 0.6%. Sales at restaurants and bars rose 0.2%.

(Reporting By Lucia Mutikani Editing By Paul Simao, Kirsten Donovan)