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On September 18, 2024
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Retail Sales Rise 0.1% In August, More Than Expected, Boosting Odds Of Larger Fed Rate Cut
U.S. retail sales rose more than expected by 0.1% month-over-month in August, signaling a resilient consumer spending momentum in the middle of the third quarter. Retail sales slowed significantly from July's upwardly revised growth; however, as they increased more than anticipated, this could boost the chances of a smaller interest rate cut when the Federal Open Market Committee (FOMC) convenes for its two-day meeting. Before the retail sales data was released, market-implied probabilities pointed to a 67% chance of a 50-basis-point rate cut, compared to a 33% likelihood of a smaller 25-basis-point cut, according to the CME FedWatch Tool. August Retail Sales Report: Key Highlights Retail sales rose by 0.1% on a monthly basis in August, beating the expected 0.2% decline as per TradingEconomics' consensus. July's retail sales growth was upwardly revised from 1% to 1.1%. On a year-over-year basis, retail sales eased from the upwardly revised 2.9% in July to 2.1% in August. Excluding motor vehicles and parts, sales grew by 0.1% month-over-month, below the 0.4% growth in July and missing the expected 0.2% increase. When excluding gasoline, motor vehicles, and parts, sales rose by 0.2% month-over-month in August, a slowdown from the 0.4% gain in July, and below the expected 0.3% Among spending categories, the largest monthly gains were recorded in miscellaneous store retailers, up 1.7%, and nonstore retailers, up 1.4%. Conversely, gasoline station, electronics and appliance stores experienced the steepest monthly decline, with sales dropping by 1.2% and 1.1% respectively. Read Next: Wall Street Could Head Higher As Traders Look Forward To Retail Sales Data Ahead Of Fed Decision, Tech Stocks On The Mend: Strategist Flags This As Best-Case Scenario For Market This Week Image created using artificial intelligence via Midjourney. Market News and Data brought to you by Benzinga APIs
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Retail Spending 'Remains On Solid Footing,' But Fed Must Weigh Rate Cuts' Impact On Workers, Says Economist
Tuesday's retail sales report for August indicates that the U.S. economy is doing pretty well, but the Federal Reserve is still expected to cut rates on Wednesday to avoid making the same mistakes as one of its predecessors, an economist says. "If the Fed doesn't initiate its easing cycle with 50-basis points surely a 25-basis point move will be enveloped by a dovish tone and offers the Fed the flexibility and gradualism in the event inflation remains even slightly elevated," said Quincy Krosby, chief global strategist for LPL Financial. "Make no mistake about it, Chair Powell doesn't want at any level to be branded a latter-day Arthur Burns and perhaps that's what motivates the Fed's direction tomorrow." Burns, America's 10th Fed chairman from 1970 to 1978, has been remembered for letting inflation run rampant. The strategist said that while retail spending "remains on solid footing," the Fed has to consider how its higher-for-longer approach on rates has put pressure on lower-wage earners and lower-middle-income workers. "Small business owners similarly have been dealing with bank loans reflecting higher rates," she said. Read Also: Retail Sales Numbers 'Were A Blowout Versus Consensus,' But Economists Predict Fed Will Still Cut Rates Retail Takeaways Retail sales in the U.S. improved more than forecasted by 0.1% month-over-month in August but ebbed considerably from July's upwardly revised growth, making the case for a smaller interest rate cut when the Federal Reserve meets on Wednesday. Retail sales rose 0.1% month-over-month in August, exceeding TradingEconomics' consensus of a 0.2% decline. July's retail sales growth was upwardly revised from 1% to 1.1%. Year-over-year retail sales slowed from the upwardly revised 2.9% in July to 2.1% in August. Excluding motor vehicles and parts, sales grew by 0.1% from July to August to come in below July's 0.4% growth and an forecasted 0.2% uptick. After taking out gasoline, motor vehicles and parts, sales rose by 0.2% from July to August, easing from the 0.4% gain in July and under the expected 0.3% There is a 67% chance of a 50-basis-point rate cut, compared to a 33% likelihood of a smaller 25-basis-point cut, according to the CME FedWatch Tool. The Fed is "dealing with mixed signals" as they face Wednesday's rate-cut decision as the economy shows resilience despite early signs of labor market weakness, said Jeffrey Roach, chief economist for LPL Financial. "The Fed may end up falling behind the curve again if they rely too much on stale data and not enough on the forward-looking outlook." The drop in gas prices in August and September is boosting consumer sentiment and should boost spending on other goods and services, said Bill Adams, chief economist for Comerica Bank. "Consumer spending is holding up in aggregate, held up by higher income households whose spending is less affected by month-to-month changes in the cost of a dozen eggs or a gallon of milk," he said. "Another cohort supporting the economy is Americans who own the same houses they lived in in 2021, 2014, or 2004. They are much less affected by shelter inflation than renters or those who've bought more recently," Adams added. Read Next: How Second-Tier Economic Data Tuesday Could Sway The Fed's Rate Decision: It 'Will Be A Trading Catalyst' Image created using artificial intelligence via Midjourney. Market News and Data brought to you by Benzinga APIs
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August retail sales rose 0.1%, surpassing expectations and potentially influencing the Federal Reserve's upcoming interest rate decision. The data suggests consumer resilience but raises concerns about the impact of continued high rates on workers.
U.S. retail sales showed unexpected resilience in August, rising 0.1% from the previous month, according to the latest data from the Commerce Department 1. This increase, though modest, surpassed economists' predictions of a 0.1% decline, indicating continued consumer spending strength despite economic headwinds.
The better-than-expected retail sales figures have complicated the Federal Reserve's upcoming interest rate decision. With consumer spending remaining robust, the odds of a larger rate hike have increased 1. The Fed's decision, expected next week, will be crucial in balancing inflation control with economic growth concerns.
Key sectors contributing to the retail sales growth included:
However, some sectors experienced declines:
Economists view the August retail sales data as a sign of consumer resilience. However, concerns persist about the sustainability of this spending pattern. Joseph Brusuelas, chief economist at RSM US LLP, noted that while retail spending remains on solid footing, the Federal Reserve must consider the impact of prolonged high interest rates on workers 2.
The robust retail sales figures are partly attributed to a strong labor market and wage growth. However, experts caution that continued high interest rates could eventually lead to job losses and reduced consumer spending. This presents a delicate balance for the Fed as it considers its monetary policy strategy 2.
While the retail sales data suggests economic resilience, inflation remains a concern. The Fed's target inflation rate of 2% has not yet been achieved, and policymakers must weigh the risk of premature rate cuts against the potential negative impacts of prolonged high rates on workers and the broader economy 2.
As the Federal Reserve prepares for its upcoming meeting, all eyes will be on how it interprets these latest retail sales figures in the context of broader economic indicators and its inflation-fighting mandate.
As inflation stabilizes, economists debate the Federal Reserve's next move. Some argue for rate cuts to boost growth, while others caution against premature action.
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The Federal Reserve faces a critical decision on interest rates, with markets and analysts anticipating a potential cut. This move could mark a significant shift in monetary policy, impacting various sectors of the economy.
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U.S. stock index futures show slight gains as investors anticipate the Federal Reserve's interest rate decision and economic data releases. The market remains cautious amid expectations of rate cuts and concerns about inflation.
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The S&P 500 reached new highs as investors await the Federal Reserve's policy meeting. Meanwhile, the retail sector demonstrates strength with positive earnings reports from major companies.
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Recent economic developments, including US inflation data and an unexpected rate cut by New Zealand's central bank, have sparked significant movements in global financial markets. Investors are now reassessing their expectations for future monetary policy decisions.
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