Briefing at a Glance

  • Retail sales rose 0.4% in September from the previous month, beating market expectations, after an increase of 0.1% in August. This data highlights the strength of U.S. consumers and supports recent upward revisions to economic growth forecasts for 2024.
  • Sales increased in 10 of the 13 retail categories, including clothing, grocery stores, and miscellaneous retailers such as florists and secondhand goods sellers. Data released by the U.S. Commerce Department on Thursday showed declines at gas stations, furniture, and electronics stores.
  • "Consumer resilience is showing through after another stronger-than-expected data release," Michelle Cluver, head of ETF model portfolios at Global X, said in an email.

In-Depth Analysis

Economists at Fannie Mae and other institutions have recently raised their growth forecasts as the economy shows vitality, despite continued weakness in manufacturing and a slowdown in hiring in early summer.

"Stronger-than-expected job growth in the August employment report and significant upward revisions to personal income data paint a picture of consumer spending trends that are more sustainable than thought a month ago," Fannie Mae said Thursday. "Although we still expect economic growth to slow, we have made notable upward revisions to the real gross domestic product (GDP) outlook," the agency's economists added. They raised their growth forecast for this year from 2% to 2.3%, and for next year from 1.8% to 2%.

Fannie Mae economists noted that the revised expectations remain below last year's growth rate of 3.2%. Additionally, "the economy's long-term potential growth rate depends on various factors, including future productivity growth and immigration flows, both of which are currently highly uncertain."

The strong September retail sales report contrasts with an unexpected decline in consumer confidence this month, as measured by the University of Michigan's Consumer Sentiment Index. Although inflation has slowed this year, Joanne Hsu, the survey's director, said in a statement: "Consumers continue to express dissatisfaction with high prices." Additionally, with the November 5 election approaching, "some consumers appear to be taking a wait-and-see attitude toward the economy's long-term trajectory." Citing the index, Hsu noted that consumer confidence remains 8% higher than 12 months ago and 40% higher than in June 2022.

The strong retail sales report also aligns with the views of interest rate futures traders. According to the CME FedWatch tool, traders see zero probability that the Federal Reserve will repeat September's 50-basis-point rate cut at its November 6-7 meeting. A month ago, traders saw a 29% chance of such a cut. The FedWatch tool shows a 90% probability of a 25-basis-point cut by policymakers at that meeting. The current federal funds rate target range is 4.75% to 5%.

There are signs that at least one area of the economy may need lower borrowing costs for a boost. The Federal Reserve reported Thursday that industrial production fell 0.3% last month, impacted by the Boeing strike and two hurricanes in the southeastern United States.