Retail sales in the United States experienced a higher-than-anticipated increase in September as the economy continued to exhibit growth during the third quarter. According to the Commerce Department’s Census Bureau, retail sales rose by 0.4% last month, following an unchanged rise of 0.1% in August. Economists surveyed by LSEG had predicted a 0.3% increase, with estimates ranging from no change to a 0.8% rise.
Excluding automobiles, gasoline, building materials, and food services, core retail sales increased by 0.5% in September, following a 0.3% rise in August. These core retail sales align closely with the consumer spending component of the GDP. Third-quarter growth is estimated at an annualized rate of about 3.2%, compared to a 3% growth rate in the second quarter.
The persistent strength of the economy is likely to bolster the chances that the Federal Reserve will opt for a smaller 25-basis-point reduction in the benchmark federal funds rate in the upcoming meeting.
Jeffrey Roach, chief economist at LPL Financial, noted that strong consumer spending in September indicates that economic growth in the previous quarter was above trend. He emphasized the importance for investors to watch for any indications that unemployed individuals may find it increasingly challenging to secure employment. Roach suggested that the Federal Reserve might reduce rates by a quarter of a percent in both November and December.
The Federal Reserve had initiated its rate-cutting cycle last month with a more substantial 50-basis-point reduction, adjusting the benchmark from 5.25% to 5.5% down to a range of 4.75% to 5%. Policymakers had previously raised the benchmark rate from near zero to its highest level in 23 years during 2022 and 2023 to combat surging inflation, which reached a 40-year high of 9.1% in June 2022.
Amid growing labor market concerns, the recent September jobs report showed stronger results than expected, with 254,000 jobs added, according to the Labor Department’s initial payroll figures.
The Federal Open Market Committee (FOMC), the Federal Reserve’s policymaking body, is scheduled to hold its next meeting on November 6-7, shortly after Election Day.
This report included contributions from Reuters.