Economists are optimistic that strong economic indicators will propel consumer spending heading into the holiday shopping season, despite a weaker-than-expected September retail sales report and the impact of recent hurricanes and looming tariffs.

Retail sales in September rose 0.1%, comparable to the 0.1% increase in sales in August, but a drop from the 0.7% month-over-month growth in retail sales seen in July, according to the U.S. Census Bureau.

September retail sales results came in lower than the expectations of some firms, including Moody's Analytics, which had forecast a 0.6% for the month.

The driver behind the slower sales growth was a 1.8% month-over-month drop in sales at food services and drinking places, which was a marked but perhaps not entirely unexpected slowdown from an otherwise strong string of sales gains over the past several months for the category.

Scott Hoyt, senior director for Moody's Analytics, said that despite the lower-than-expected September report, strong consumer fundamentals, including increased credit availability, low unemployment, and wage growth and consumer optimism as reasons why Moody's still projects that total retail sales for 2018 will be at the "higher end" of its projected 3.5% to 4.5% year-over-year sales growth.

"It was broadly weaker than expected," Hoyt said. "But I don't think that really diminishes the outlook for a strong holiday shopping season."

The sales report included several "surprises," including a larger-than-expected drop in restaurant sales, as well as the 0.8% drop in gas sales, which he said was a surprise given the increase in gas prices. He attributed this in part to Hurricane Florence, the Category 1 storm that pummeled parts of North Carolina, South Carolina and Virginia midway through the month.

National Retail Federation Chief Economist Jack Kleinhenz said the September figures were "somewhat softer" than expected and attributed the report to both Florence and global trade spats. Kleinhenz agreed with Hoyt, however, that consumer fundamentals and wage growth foster a solid trajectory heading into the fourth quarter.

The group recently projected that holiday retail sales in November and December will increase between 4.3% and 4.8% over 2017.

Impact of recent hurricanes

Several economists said retail sales in the fourth quarter could be impacted — both positively and negatively — by the preparatory and residual effects of hurricanes Florence and Michael, which tore through parts of the Southeast U.S.

Planalytics, a weather analytics firm, has estimated that Florence will cost the retail sector $700 million in lost sales. Michael, stronger in intensity at landfall but with a path that largely avoided major population centers, will cost retailers up to $250 million in lost sales.

Evan Gold, executive vice president of global partnerships and alliances for Planalytics, expects that hit to come in the form of discretionary areas such as entertainment centers and restaurants. He also expects an increase in sales at building material and garden equipment and supplies dealers as well as at motor vehicle and parts dealers during recovery efforts.

"If you lost an entire house or roof you may wind up fixing stuff for a long period of time," Gold said.

Moody's Hoyt agreed: "I think once we get past the store closures and get into the recovery period, if anything, the storm is a support to sales."

Positive economic indicators in September could portend strong holiday sales season

The U.S. added 134,000 jobs in September, the U.S. Labor Department said in its Oct. 5 monthly jobs report. The unemployment remained at a low 3.7%, while the average hourly earnings for nonfarm payroll employees rose by eight cents to $27.24.

Meanwhile, the consumer confidence index reached an 18-year high in September, according to the Conference Board.

These positive indicators should more than offset the anticipated increase in consumer prices stemming from the Trump administration's recently implemented tariffs on imports of Chinese goods, Hoyt said.

The 10% tariff n Chinese imports, which includes furniture, mattresses, tilapia and other consumer products and is set to rise to 25% on Jan. 1, 2019, went into effect in late September. Also hanging over consumers' heads is another set of threatened tariffs on $267 billion — which would likely largely target consumer goods — of imported Chinese goods.

"The tariffs aren't going to have a big impact on holiday shopping because most goods sold through Christmas were imported ahead of the major tariffs," Hoyt said. "There will be a bigger impact on consumer prices come next year."

However, another firm, IHS Markit, revised its holiday retail sales growth slightly downward to 4.7% from 5.0%, partially due to the weak September sale report. The firm had previously projected a 0.5% increase in sales for September.

"Part of it is because the actual data was softer than expected for September," John Bohnaker, associate director for the research and information firm, said in an interview. "This puts us at a lower starting point, and we would need to catch up in the holiday season to get the same growth."

The 0.8% dip in monthly gas sales was slightly concerning, Bohnaker said, particularly since gas prices have been on the rise and now stand at more than $2.90 per gallon on average in the U.S. If they continue to rise, that could eat into holiday spending allocation, he said.

"As you get to certain thresholds like $3 a gallon, people really start to take notice," Bohnaker said. "It's more of a psychological effect."