U.S. retail sales powered higher again in September, Commerce Department data indicated Wednesday, adding to concern that the hot domestic economy will produce renewed inflation pressures.
Headline sales rose 0.4% last month to a collective tally of $714.4 billion, stronger than economists' consensus forecast of a 0.3% gain and the unrevised August estimate of a 0.1% increase.
The closely tracked control-group number, which excludes autos, building materials, office supplies, gas-station sales and tobacco, and feeds into the government's GDP calculations, rose 0.7% on the month, well ahead of the Wall Street consensus forecast of 0.4%.
Gasoline-station sales were down 1.6%, the report indicated, after Energy Department data showed the national average fell 3.6% from August to $3.338 per gallon.
The numbers make clear that Americans aren't tightening their belts, even if they continue to tell pollsters that inflation is too high and the economy isn't as strong as the data suggest.
Consumers are healthier than people thought
A recent Gallup poll showed that the economy ranks as the most important of 22 issues that registered voters say will influence their choice for President in November, with most (54%) preferring the policies of former President Donald Trump over those of Vice President Kamala Harris.
The Atlanta Fed, which will update its GDPNow forecasting tool later in the session, pegged its most-recent reading for third-quarter growth at 3.2%.
"Combined with the strong jobs report earlier this month and lower-than-expected jobless claims this morning, recent economic data is pointing to a consumer that is healthier than many investors may have thought," said Bret Kenwell, U.S. investment analyst at eToro. "If the data continues to come in strong, it could force investors to lower their expectations of Fed rate cuts going forward."
U.S. stocks extended gains following the data release, as traders bet that the solid spending tally supports a soft landing for the world's biggest economy, even if it might tame bets on a big Federal Reserve interest-rate cut.
The S&P 500 was last marked 9 points, or 0.15% higher after hitting a fresh record peak earlier in the session, while the Nasdaq gained 41 points and the Dow Jones Industrial Average rose 103 points.
Benchmark 10-year Treasury note yields rose 4 basis points to 4.069% following the data release, while 2-year notes were up 4 basis points to 3.993%.
Related: Bond markets are heaving as Fed interest rate bets swing
Fed interest rate cut bets have reset this month
The CME Group's FedWatch indicates a 91% chance that the Fed will lower its benchmark Federal Funds Rate by just a quarter percentage point next month in Washington, up from 51.3% in late September.
Commerce Department data last week showed that headline consumer-price inflation for September eased to an annual rate of 2.4%, the lowest since February 2021, while core price pressures quickened to 3.3%.
"The implications for monetary policy center on whether the Fed worries that the renewed strength in the economy fuels an uptick in inflation, although expectations remain that there will be a 25 basis point cut at the next meeting, particularly if the hurricane damage severely impacts the labor market," said LPL Financial's chief global strategist Quincy Krosby.
More Economic Analysis:
- Goldman Sachs analyst overhauls S&P 500 targets for 2024, 2025
- PCE Inflation report resets bets on another big Fed rate cut
- Why stocks are soaring and the rally has room to run
The Labor Department's September jobs report also suggested the risk of renewed inflation pressures heading into the final months of the year, with overall hiring pegged at 254,000 and the headline unemployment rate easing to 4.1%.
Related: Veteran fund manager sees world of pain coming for stocks
