Core Data: Retail Sales See Consecutive Growth

Data released by the U.S. Department of Commerce on Friday (November 15) showed that retail sales in October increased by 0.4% month-over-month from September and rose 2.8% year-over-year compared to October 2023. This data provides a positive signal for consumer spending during the upcoming holiday shopping season.

Of the 13 retail categories tracked by the Commerce Department, 8 categories recorded sales growth, including automobiles, food services and drinking places, and electronics and appliance stores. Meanwhile, furniture stores, miscellaneous store retailers, and health and personal care stores saw the most significant sales declines.

Fed Officials: Economy in Good Shape

Federal Reserve Chair Jerome Powell said in a speech on Thursday (November 14): "Consumer spending growth remains strong, supported by rising disposable incomes and solid household balance sheets."

Boston Fed President Susan Collins echoed Powell's remarks in a Bloomberg Television interview on Friday, stating that "the economy is in very good shape right now, inflation is returning to target, the labor market is healthy, and we are seeing solid growth."

On monetary policy, Collins also aligned with Powell. She said: "We are not on a preset path, so we must carefully examine the data to see what makes sense before December 18 (the final day of the policy meeting)." The Fed's two-day policy meeting will be held from December 17 to 18.

Market Expectations for Rate Cuts Cool

Recent signals of strong consumer spending, a solid job market, and persistent inflation have led interest rate futures traders to scale back their bets on a 25-basis-point rate cut at the Fed's December meeting. According to the CME FedWatch Tool, traders now see a 58% probability of a 25-basis-point cut in December, down from 72% on Thursday (November 14).

Economic Growth Exceeds Expectations

Despite earlier predictions of a recession, the U.S. economy has remained resilient. Data from the Bureau of Economic Analysis shows that GDP grew at an annualized rate of 1.4% in the first quarter, 3% in the second quarter, and 2.8% in the third quarter. The Atlanta Fed said on Friday that fourth-quarter GDP growth could reach an annualized rate of 2.5%.

Multiple Fed Presidents Discuss Rate Path

Chicago Fed President Austan Goolsbee said on Friday that the Fed still has "a long way to go" in lowering interest rates to make current restrictive monetary policy neither dampen nor stimulate economic growth.

"I still think there is a lot of room for rates to come down," Goolsbee said in a Bloomberg Television interview. The Fed cut the federal funds rate by 0.5 percentage points in September and by another 0.25 percentage points this month (November), bringing the current range to 4.5% to 4.75%.

When asked about the policy meeting, Goolsbee said: "All options are on the table, but nothing is certain, and there shouldn't be a commitment to certainty."

Consumer Confidence and Spending Outlook

Consumer spending, which accounts for about 70% of U.S. economic growth, has defied earlier predictions of a downturn, driven by solid wage growth and rising confidence among American households.

The University of Michigan's November survey showed that consumer optimism about the strength of the economy over the next six months rose to its highest level since July 2021, with expectations for personal finances up 6%. The overall consumer sentiment index rose 3.5%, reaching its highest reading in six months. Joanne Hsu, director of the university's Surveys of Consumers, said expectations for short-term business conditions jumped 9%.

The Conference Board noted in its Consumer Confidence Index report that consumer sentiment improved last month by the most since March 2021. All five components of the index improved, including consumers' assessments of current business conditions, job availability, future business conditions, future income, and future job availability.