Americans were spending more cautiously in September, with retail sales rising just 0.1 per cent on the month, the Commerce Department said Wednesday.

Data on August retail sales also was revised downward to 0 per cent growth, raising fears that consumers, a key driver of the U.S. economy, are pulling back on spending.

The evidence of a potential slowdown in the U.S. was enough to move the Canadian dollar higher. It closed up more than half a cent to 77.28 cents US.

The new data, and producer price index data showing evidence of deflation, is likely to be weighed by the Federal Reserve when it considers whether to raise interest rates later this month.

The Fed put off a rate hike in September because of fears that market volatility and the downturn in China could hurt the U.S. economy.

But Fed chair Janet Yellen still seems sure that the U.S. central bank will have to raise rates by the end of the year.

RBC assistant chief economist Paul Ferley is expecting the Fed to move by yearend, and says the slowdown in spending is likely temporary.

"An expected recovery in October retail sales should keep consumer spending growing at an above-average pace," he said in a note to investors.

But Ferley noted the September results were "disappointing" saying "solid, sustained increases in this key expenditure area provide a strong argument for the Fed to start to pull back on the currently highly stimulative monetary conditions."

September producer prices also dropped by a greater than expected 0.5 per cent, mainly as a result of falling gasoline prices, but also because of a strong U.S. currency. That means there is deflationary pressure on U.S. prices which could be working its way through to consumers.

Americans spent 1.8 per cent more on cars in September, while spending rose 0.7 per cent at restaurants and 0.9 per cent at clothing stores.

But spending at gasoline stations plunged 3.2 per cent and spending on housing and building supplies also was down.

"The latest report on U.S. retail sales activity was downbeat," said Jennifer Lee, a senior economist at BMO Capital Markets. "Consumers continued to eat out, but electronics failed to get a boost, even with the launch of the new iPhone 6s and 6s Plus."

Economists worry that hiring has slowed in the U.S., leading to a deceleration in domestic spending. That could lead to disappointing growth in Canada, as our second half recovery is contingent on expanded U.S. spending.

The global slowdown and the high U.S. dollar may be working their way through to be felt by the U.S. economy.

"With significant headwinds facing the economy's externally-exposed sectors, continued robust consumption remains crucial to the U.S. outlook," said TD economist Andrew Labelle.