Washington, Oct. 17 (BNA): U.S. retail sales increased more than expected in September as households stepped up purchases of motor vehicles and spent more at restaurants and bars, cementing expectations that economic growth accelerated sharply in the third quarter.
The economy’s enduring strength has defied the hand-wringing since late 2022 about a possible recession this year. Its stamina was underscored by other data on Tuesday showing production at factories rising solidly last month despite strikes in the automobile industry, Reuters reported.
Goldman Sachs raised its gross domestic product growth estimate for the third quarter by three-tenths of a percentage point to a 4.0% annualized rate, which would be the fastest since the end of 2021. Coming on the heels of stronger-than-expected employment growth and consumer price readings in September, the reports raise the risk of the Federal Reserve hiking interest rates in December or January.
Retail sales rose 0.7% last month. Data for August was revised higher to show sales advancing 0.8% instead of 0.6% as previously reported. Economists polled by Reuters had forecast retail sales rising 0.3% in September. Retail sales are mostly goods and are not adjusted for inflation. They rose 3.8% year-on-year in September.
Economists defended their forecast for tepid retail sales growth, which they said was based on softening consumer confidence. They said they had also relied on weekly credit card transaction data from the Commerce Department’s Bureau of Economic Analysis, which compiles the consumer spending data.
Despite the show of resilience, headwinds are mounting for consumers, many of whom rely on debt to fund purchases. Higher borrowing costs as the U.S. central bank tackles inflation have pushed credit card delinquencies to an 11-year high. Millions of Americans resumed payments on student loans in October, which economists estimated was equal to roughly $70 billion, or around 0.3% of disposable personal income.
Nevertheless, consumer spending continues to be driven by a tight labor market, with the economy creating 336,000 jobs in September. Excess savings accumulated during the COVID-19 pandemic remain higher than previously estimated, and are mostly expected to last at least through the first quarter of 2024.
Stocks on Wall Street were trading higher. The dollar slipped versus a basket of currencies. U.S. Treasury prices fell, with the yield on the benchmark 10-year note approaching 16-year highs.
Financial markets still expect the Fed will leave rates unchanged at its Oct. 31-Nov. 1 policy meeting, according to CME Group’s FedWatch Tool, amid rising U.S. Treasury yields. They saw less than a 40% chance of an increase in December, though the odds of a January hike are rising. Since March 2022, the Federal Reserve has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.
Sales at auto dealerships accelerated 1.0% last month after rising 0.4% in August. Receipts at gasoline stations climbed 0.9%, reflecting higher pump prices.
Online sales jumped 1.1% and could rise again in October after Amazon held another Prime Day promotion this month, which saw other retailers following suit.
Sales at food services and drinking places shot up 0.9%. Economists view dining out as a key indicator of household finances. Receipts also rose at health and personal care, general merchandise as well as food and beverage stores.
But consumers cut back on purchases of other big-ticket items like electronics and appliances, with sales at these outlets falling 0.8%. Receipts at building material, garden equipment and supplies dealers dropped 0.2%. Furniture store sales were unchanged. Sales at clothing stores declined 0.8%.
Receipts at sporting goods, hobby, musical instrument and book stores were unchanged.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.6% in September. Data for August was revised up to show these so-called core retail sales gaining 0.2% instead of 0.1% as previously reported.
Core retail sales correspond most closely with the consumer spending component of GDP. Consumer spending is expected to have accelerated in the third quarter, also thanks to a surge in July. Spending on services remains solid, which should also lift overall consumption.
The economy grew at a 2.1% pace in the April-June quarter.
With sales rising, businesses are boosting inventory investment. A separate report from the Commerce Department showed business inventories rose 0.4% in August, the most since last December, after edging up 0.1% in July.
Inventories could provide a lift to third-quarter GDP after being neutral in the April-June period. The government is scheduled to publish its advance estimate of third-quarter GDP next Thursday.
The run of upbeat news on the economy was extended by a third report from the Fed showing manufacturing output rose 0.4% last month after dipping 0.1% in August, and handily beating economists’ expectations for a 0.1% gain.
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