Retail sales in the US unexpectedly rose last month – a surprisingly strong result that has reduced the likelihood of a big interest rate cut by the Federal Reserve this week.
Data released by the Commerce Department on Tuesday showed the value of retail purchases rose 0.1% in August — beating economists' forecast of a 0.2% decline — as cash-strapped consumers showed resilience in the face of a shaky economy.
Commerce Department data on Tuesday showed last month's surprise rise followed a revised 1.1% increase in July. Excluding autos and gasoline stations, sales rose for the fourth consecutive month.
Five of the 13 major sales categories covered in the report recorded growth, while others, including electronics and appliances, clothing and furniture, declined.
The better-than-expected data – which reflects solid domestic demand even as hiring and wage growth have shown signs of stagnating recently – comes at a time when traders expect the Federal Reserve to deliver a much-anticipated interest rate cut after its policy meeting on Wednesday.
The surprise rise in retail sales has further bleakened the picture for traders – 70% of whom had previously indicated they believed the Fed would issue a 50 basis point rate cut, according to CME FedWatch.
“This decision is complicated by conflicting signals of solid economic activity but a weak labor market,” Seema Shah of Principal Asset Management told CNBC. “Rarely have market expectations been so shattered, so weak [Federal Open Market Committee] meeting.”
While a rate cut can't be ruled out, analysts estimate a quarter-point cut is more likely, CNBC reported.
This will be the first interest rate cut since 2020, before which the Fed issued a series of interest rate hikes in 2022 and 2023, which reduced demand and blocked the labor market.
Retail sales excluding autos and gasoline rose 0.2%, below estimates of 0.3%. Sales excluding volatile categories rose 0.3% in August, in line with estimates.
The fall in prices at petrol pumps led to a decline in sales at petrol service stations.
The national average price of a gallon of gas on Tuesday was $3.20, according to AAA — down from the average price of $3.42 a month ago, but still very high.
Stock markets rose on Tuesday after better-than-expected data.
The S&P 500 was up 0.4% at midday, while the Dow Jones added 0.3% and the Nasdaq 100 added 0.6%.
