Consumer spending was anticipated to remain robust in September, potentially exceeding predictions and influencing the Federal Reserve’s considerations. The Census Bureau’s retail sales report, released on Thursday morning, is expected to reveal a monthly increase of 0.3%, based on the Dow Jones consensus. This figure is seasonally adjusted but not for inflation, indicating a 0.1% increase from August, surpassing the 0.2% inflation rate for the month as per the consumer price index. This suggests that consumer spending is keeping pace with inflation, with indications of stronger performance. Bank of America predicts that sales excluding autos might have risen by 0.7%, significantly above the forecasted 0.1%, suggesting that the consumer sector is gaining momentum.
Aditya Bhave, an economist at Bank of America, noted that if retail sales accelerate notably, the economic narrative may shift towards “no landing” or even a re-acceleration. This forecast is based on tracked monthly card spending data, which shows a 0.6% increase in sales for September, supported by department, general merchandise, and clothing stores. Although retail sales data can fluctuate, a report aligning with Bank of America’s prediction would be significant, especially considering potential upward revisions to gross domestic product and gross domestic income, alongside a strong September jobs report.
Consumer spending accounts for nearly 70% of GDP. If the retail sales report confirms strong performance, it raises questions about its potential impact on the Federal Reserve and its interest rate policy. Currently, Bhave believes a robust sales report may not immediately influence Fed policy, citing that further rate cuts are unlikely unless economic data significantly strengthens. He suggests that if economic activity remains strong when rates approach 4%, the Fed might consider the possibility that their monetary policy is no longer restrictive.
Simultaneously with the release of the retail report, the Labor Department will provide its weekly update on initial unemployment claims. Last week, the numbers increased to 258,000, with expectations to remain around 260,000. This rise is attributed primarily to the effects of hurricanes Helene and Milton in the Southeast and the Boeing strike impacting Michigan.
