Consumer spending in September was anticipated to remain robust, potentially exceeding projections and adding complexity to the Federal Reserve’s decision-making process. The Census Bureau’s retail sales report, released on Thursday morning, was predicted to indicate a monthly increase of 0.3%, as per Dow Jones consensus. This figure, which accounts for seasonal adjustments but not inflation, follows a 0.1% rise in August and surpasses the 0.2% inflation rate measured by the consumer price index for the same month. Such performance would suggest consumers are coping with inflation, although some indicators suggest the strength might be even greater.
Bank of America suggested that sales, excluding the automotive sector, could have surged by 0.7%, significantly higher than the expected 0.1% increase, indicating a strong performance in the consumer segment of the economy. Bank of America economist, Aditya Bhave, noted that a month prior, discussions centered around whether the economy was heading for a recession or a soft landing. However, if retail sales gain substantial momentum, the narrative might shift towards ‘no landing’ or even renewed acceleration. This forecast is based on monthly tracked card spending data, which showed a 0.6% increase for September, driven by department, general merchandise, and clothing stores.
Bhave emphasized that while monthly retail sales data can be volatile, the anticipated report would be significant due to potential upward revisions in gross domestic product and gross domestic income, coupled with a strong September jobs report. Consumer spending constitutes nearly 70% of GDP, and if the report is as anticipated, it could influence the Federal Reserve’s interest rate-cutting strategies. Currently, Bhave believes that a strong sales report will not yet impact Federal Reserve policy. Policymakers are expected to continue considering rate cuts unless economic data strengthens considerably. Bhave noted that if economic activity remains vigorous as rates approach 4%, the Federal Reserve might need to reassess whether monetary policy remains restrictive.
Simultaneously with the retail report, the Labor Department was set to release its weekly data on initial unemployment claims. The numbers had surged to 258,000 recently and were expected to stabilize around 260,000. This increase was largely attributed to Hurricanes Helene and Milton in the Southeast, as well as the Boeing strike affecting Michigan.