Agencies
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US retail sales unexpectedly rose in August as a decline in receipts at auto dealerships was more than offset by strength in online purchases, suggesting that the economy remained on solid footing through much of the third quarter.
The report from the Commerce Department on Tuesday also showed retail sales were a bit stronger than initially thought in July. It combined with the decline in the unemployment rate last month to push against financial market expectations for a half-percentage-point interest rate cut from the Federal Reserve on Wednesday. US central bank officials started a two-day policy meeting on Tuesday.
The Atlanta Fed raised its third-quarter GDP growth estimate to a 3 percent annualised rate from a 2.5 percent pace after the data. The economy grew at a 3 percent pace in the second quarter.
“There does not appear to be any reason for Fed officials to start out with a larger 50 basis points rate cut because whatever stress there is in the labor market, it isn’t translating into weaker economic demand,” said Christopher Rupkey, chief economist at FWDBONDS. “If this is an economy on the brink of recession, consumers certainly don’t see it.”
Retail sales increased 0.1 percent last month after an upwardly revised 1.1 percent surge in July, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, falling 0.2 percent after a previously reported 1 percent jump in July. Estimates ranged from a 0.6 percent decline to a 0.6 percent gain.
Retail sales increased 2.1 percent on a year-on-year basis in August. Online store sales rebounded 1.4 percent after falling 0.4 percent in July. Sales at gasoline stations dropped 1.2 percent, reflecting lower prices at the pump. Cheaper gasoline is likely freeing money for other spending.
Sales at sporting goods, hobby, musical instrument and book stores increased 0.3 percent. Building material and garden equipment store sales edged up 0.1 percent.
Sales at miscellaneous retailers shot up 1.7 percent, while those at health and personal care outlets increased 0.7 percent.
But sales at food services and drinking places, the only services component in the report, were unchanged after rising 0.2 percent in July. Economists view dining out as a key indicator of householdfinances.
Furniture store sales fell 0.7 percent. Receipts at electronics and appliance outlets dropped 1.1 percent, while those at clothing retailers decreased 0.7 percent. Receipts at motor vehicle and parts dealers dipped 0.1 percent and department store sales tumbled 1.1 percent.
Some of the decline in sales was likely due to lower prices rather than volume. Prices for goods, including furniture, have been on a downward trend.
Financial markets saw a roughly 59 percent probability of a 50 basis points rate cut on Wednesday, down from 67 percent before the retail sales data was published, according to CME Group’s FedWatch Tool. The odds of a quarter-point rate reduction were around 41 percent, up from 33 percent earlier.
Stocks on Wall Street were trading higher, with the benchmark S&P 500 briefly setting an intraday record high.
The dollar nudged up against a basket of currencies. US Treasury yields rose.
A column chart titled “Monthly change in US retail sales” that tracks the metric over the last year. Retail sales rose 0.1 percent in August.
A column chart titled “Monthly change in US retail sales” that tracks the metric over the last year. Retail sales rose 0.1 percent in August.
A person pushes a shopping cart in a supermarket in Manhattan, New York City
The Fed has maintained its benchmark overnight interest rate in the current 5.25 percent -5.5 percent range for more than a year, having raised it by 525 basis points in 2022 and 2023.
Most economists expect the central bank to cut interest rates by 25 basis points on Wednesday, arguing that the economy is not in enough distress to warrant the half-percentage-point reduction being anticipated by financial markets.
The unemployment rate fell to 4.2 percent in August after four straight monthly increases lifted it to a near three-year high of 4.3 percent in July. The jobless rate has been largely driven by increased labor supply from immigration, which is now slowing.
