US Retail Sales Increase Solidly in September
U.S. retail sales saw a notable increase in September, rising slightly more than anticipated. This development supports the belief that the economy sustained a strong growth trajectory in the third quarter.
According to the Commerce Department’s Census Bureau, retail sales went up by 0.4% last month following an unrevised 0.1% gain in August. Economists had predicted a 0.3% rise in retail sales, which mainly consist of goods and are not adjusted for inflation. Their estimates ranged from no change to an increase of 0.8%.
Despite indications of economic resilience, it is anticipated that the Federal Reserve will proceed with its plan to cut interest rates. However, the expectation is now for a smaller 25-basis-point reduction in borrowing costs. Last month, the U.S. central bank initiated its easing cycle with a significant half-percentage-point cut in its policy rate, bringing it down to the 4.75%-5.00% range amidst growing concerns about the labor market. The Fed had previously raised rates by 525 basis points during 2022 and 2023 to address inflation.
The solid financial foundation of American consumers continues to support spending and the broader economy. This foundation is characterized by robust income growth, substantial savings, and strong household balance sheets. Though there has been a noticeable slowdown in the labor market’s momentum, layoffs remain historically low, which in turn supports wage growth.
Jonathan Millar, a senior U.S. economist, highlighted the ongoing strength of consumer spending. He noted that the synergy between consumer spending, net hiring, and payroll income creates a resilient cycle that is further bolstered by increased household wealth and labor supply. According to Millar, a significant downturn in consumer spending would require a substantial disruption to this cycle, such as heightened consumer caution leading to increased saving rates or a reluctance among businesses to hire, even when demand is high.
Core retail sales, which exclude automobiles, gasoline, building materials, and food services, saw a commendable increase of 0.7% last month following an unrevised 0.3% rise in August. These core retail sales figures align closely with the consumer spending component of the gross domestic product (GDP).
Economic Growth Outlook
The latest estimates suggest that the economy is growing at an annualized rate of approximately 3.2% in the third quarter. This presents a slight improvement over the 3.0% growth pace recorded in the second quarter.
The upward trend in retail sales underpins optimism about the sustained economic growth and reflects the enduring strength of consumer fundamentals in the United States. As the situation unfolds, the Federal Reserve’s response to these economic signals will be closely monitored, along with the broader implications for future monetary policy and economic expansion.
