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American shoppers and diners closed out the summer without much sign of cutbacks—fresh evidence of how strong consumer spending has helped insulate the economy from a downturn.
Sales for retailers and eateries grew by 0.4% in September from a month earlier, according to advance data from the Census Bureau, an acceleration from 0.1% growth in August and a higher pace than economists had been expecting. Restaurants and bars fared especially well last month, as did clothing stores, suggesting shoppers’ appetite to spend hasn’t yet been tapped out.
Meanwhile, a weekly look at unemployment filings showed some continuing pain from hurricanes Helene and Milton—but few marks of a more serious downward spiral in the labor market.
Together, the data add to a picture of a cooling but still-robust economy heading into a pivotal stretch for American business and politics: In less than three weeks voters will choose the next president and the Federal Reserve will decide whether to keep cutting interest rates.
“That’s been the theme with retail sales in the past few months: broad-based strength,” said Gisela Hoxha, an economist at Citi. “It’s hard to argue with the numbers that are pointing to consumers continuing to spend in the aggregate.”
Over the past 12 months, retail sales have climbed 1.7%, not adjusting for inflation.
Over the summer, rising unemployment fueled fears that the economy was approaching a downturn, long considered a risk of the Fed’s assertive interest-rate hikes intended to curb inflation. This fall, more encouraging news about the labor market—including a stellar September jobs report—cooler inflation and signs of consumers’ sustained financial health have painted a more resilient picture.
Hoxha and her colleagues at Citi still believe a mild recession is likely, but many of the bank’s investing clients have grown more optimistic since the summer, she said.
Heading into the election, economic data will be harder than usual to parse. The two recent hurricanes have disrupted life from Florida to North Carolina, and analysts suspect a large strike by Boeing machinists in Washington State is hampering other companies and workers in the aircraft maker’s supply chain.
When October jobs data arrive four days before Election Day, both disruptions could lift the unemployment rate, even if the broader economy hasn’t fundamentally slowed, analysts say.
After discounting the effects of the hurricanes and the strike, Thursday’s unemployment-claims data reflect a labor market that is slowing only gradually, said Oliver Allen, an economist at Pantheon Macroeconomics.
Similarly, a report published by the Fed on Thursday indicated that U.S. industrial production fell in September. But setting aside the effects of the hurricanes and the strike, production likely would have grown about as fast as it did in August, the Fed said.
The central bank’s rate-setting committee plans to meet Nov. 7 to decide whether to bring interest rates down further, after an unusually large half-point rate cut in September. Several committee members have said in recent public remarks that they are considering a smaller quarter-point cut in November, or even holding rates steady.
Source: The Wall Street Journal October 17, 2024 | By Matt Grossman