In September, consumer spending was anticipated to remain robust, potentially exceeding expectations and influencing the Federal Reserve’s decision-making process. The Census Bureau’s upcoming retail sales report, scheduled for release on Thursday morning, is projected to show a 0.3% increase for the month, based on Dow Jones consensus estimates. This figure accounts for seasonal adjustments but not inflation. This would reflect a rise from a 0.1% increase in August and surpass the 0.2% inflation rate recorded for the month, as indicated by the consumer price index. While this alone would indicate a solid performance, suggesting consumers are keeping pace with inflation, some indicators suggest even stronger growth.
Bank of America predicts that sales excluding autos might have surged by 0.7%, significantly above the 0.1% forecast, highlighting a strong consumer economy. According to Aditya Bhave, an economist at Bank of America, if retail sales see a significant acceleration, the economic narrative could shift away from recession concerns toward a scenario of ‘no landing’ or even re-acceleration. The bank’s prediction is based on monthly card spending data they track, which showed a 0.6% sales increase in September, driven by department stores, general merchandise, and clothing outlets.
Bhave noted in a recent communication that while monthly retail sales data can be volatile, a report aligning with their forecast would be noteworthy, especially considering upward revisions in gross domestic product and gross domestic income, in conjunction with a strong September jobs report. Consumer spending constitutes nearly 70% of GDP, meaning a substantial report could have implications for the Federal Reserve and its emerging interest rate-cutting strategy. However, Bhave believes that a strong sales report will likely not impact Fed policy immediately, with policymakers potentially continuing to reduce their benchmark rate, currently between 4.75% and 5.00%, unless economic data shows significant strengthening. Bhave also stated that if economic activity remains vigorous when rates approach 4%, the Fed may begin to reconsider whether monetary policy is still restrictive.
Simultaneously with the release of the retail report, the Labor Department will provide its weekly update on initial unemployment claims. These claims saw a notable increase last week to 258,000 and are expected to remain around the 260,000 mark. This rise is largely attributed to Hurricanes Helene and Milton in the Southeast, as well as the impact of the Boeing strike, particularly affecting Michigan.
