WASHINGTON D.C.: As Americans increased their purchases of motor vehicles and dined out more amidst lower gas prices, U.S. retail sales unexpectedly rebounded in August.

However, demand is expected to cool as the Federal Reserve again raises interest rates to curb inflation.

Additionally, the ongoing strength of the labor market is expected to continue driving consumer spending, with data released this week showing the number of people filing new claims for unemployment benefits fell to the lowest level in more than three months.

Along with a surprise increase in consumer prices in August, the data could encourage the U.S. Federal Reserve Bank to deliver a third consecutive 75-basis-point rate increase.

"Demand appears to be slowing this quarter, but job losses look modest at this point of the economic cycle," noted Christopher Rupkey, chief U.S. economist at FWDBONDS in New
York, as quoted by Reuters.

Driven by back-to-school shopping, in August retail sales increased 0.3 percent, but data for July was revised downward to show retail sales falling 0.4 percent, instead of being unchanged as previously reported.

Mostly made up of goods and not adjusted for inflation, retail sales increased 9.1 percent year-on-year in August.

Despite consumers enjoying lower gasoline prices in August, some economists were disappointed that monthly sales, which did not reverse July's decline, was a sign that high inflation was forcing a reduction in discretionary spending, as consumers prioritized purchases of
essential items.

Gregory Daco, chief economist at EY-Parthenon in New York, said, "While consumers remain generally willing to spend, many families, especially those at the lower-to-median end of the income spectrum, are feeling increasingly constrained by elevated prices."