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Strong discretionary spending buoys US retail sales in September

investing.com 17/10/2024 - 12:38 PM

U.S. Retail Sales Surge in September

By Lucia Mutikani
WASHINGTON (Reuters) — U.S. retail sales saw a solid increase in September, likely boosted by lower gasoline prices, allowing consumers to spend more at restaurants and bars. This trend supports the notion that the economy continued to grow robustly in the third quarter.

The Commerce Department's report on Thursday showcased a stronger-than-expected rise in retail sales, which highlighted significant gains in clothing store receipts and miscellaneous retailers. Increased online purchases and spending at health and personal care stores also contributed.

Consumer spending and economic health are supported by solid income growth, ample savings, and strong household balance sheets, despite a slowdown in labor market momentum and historically low layoffs aiding wage gains.

Despite signs of economic resilience, the Federal Reserve is still expected to cut interest rates next month, likely reducing borrowing costs by 25 basis points. The Atlanta Fed adjusted its third-quarter GDP growth estimate upward to a 3.4% annualized rate from 3.2%.

Retail sales rose 0.4% in September, following an unrevised gain of 0.1% in August. Economists had anticipated a 0.3% increase. Year-on-year, retail sales advanced by 1.7%. Gasoline prices dropped roughly 12 cents per gallon during this period.

Sales at food services soared by 1.0%, following a 0.5% increase in August, indicating strong consumer finances through dining out. Sales in clothing stores increased by 1.5%, likely due to back-to-school shopping, while miscellaneous store retailers surged 4.0% and online sales climbed 0.4%.

Despite gains in various retail categories, there was a notable 3.3% drop in electronics and appliance store sales and a 1.4% decline in furniture sales. Auto dealership sales remained unchanged, while service station receipts fell by 1.6% due to lower gasoline prices.

Interestingly, this retail strength contrasts with poor consumer sentiment as some companies noted households demonstrating spending hesitancy ahead of the November 5 U.S. presidential election. Nestlé's CFO attributed slowed U.S. sales partly to these election-related concerns, although economists suggest consumers are opting for cheaper substitutes.

“The U.S. consumer still has formidable spending power that they continue to deploy in somewhat more targeted ways,” said Scott Anderson, chief U.S. economist at BMO Capital Markets.

Jobless Claims Fall

In a separate report, the Labor Department noted initial claims for state unemployment benefits fell by 19,000 to a seasonally adjusted 241,000 last week. This drop was influenced by challenges such as hurricanes and a strike at Boeing, complicating labor market evaluations.

Economists had estimated claims would reach 260,000 for the latest week. Claims had spiked due to Hurricane Helene which affected Florida extensively in late September, although a rise in claims is expected with Hurricane Milton impacting Florida weeks later.

The claimed report coincided with the government's preparation for the nonfarm payrolls component of October's employment statistics, which indicated significant nonfarm payroll increases in September. Economists expect the Federal Reserve will minimize the importance of employment data in its early November meeting, just days before the U.S. election.

The U.S. central bank started its easing cycle with a 50-basis-point cut in its policy rate last month, lowering it to the 4.75%-5.00% range due to labor market concerns. After an aggressive rate hike of 525 basis points over the past two years to combat inflation, further rate cuts are anticipated, albeit with caution.

Core retail sales, excluding automobiles, gasoline, building materials, and food services, increased by 0.7% last month after a 0.3% rise in August. Economists boosted their estimates for third-quarter consumer spending to a 3.4% rate, from a previous 3.0% pace.

“As we have long argued, consumer spending, net hiring, and payroll income have been locked in a resilient and self-reinforcing virtuous cycle throughout this expansion,” stated Jonathan Millar, senior U.S. economist at Barclays. He noted that significant consumer spending deterioration would necessitate factors undermining this cycle, such as increased consumer savings or decreased business hiring despite solid demand.




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