US economic data continues to improve: challenges…

Bloomberg – U.S. retail sales exceeded all expectations and industrial production strengthened last month, further evidence of the resilience of the American consumer, whose spending helps stabilize the manufacturing sector.

Sales, not adjusted for inflation, rose 0.7% after upwardly revised gains in the previous two months, according to the Commerce Department. So-called control group sales – which are used to calculate merchandise spending in the GDP report – rose 0.6%, better than expected.

Strong consumer demand, in the wake of September data that showed stubborn inflation and high job growth, threatens to prompt the Fed to raise interest rates again. The reports led a range of economists, from Goldman Sachs Group to JPMorgan Chase & Co. (JPM) and Morgan Stanley, to raise their third-quarter GDP estimates.

The 10-year Treasury yield rose to its highest level since 2007, while the S&P 500 fell. Traders increased their bets on raising interest rates in the coming months and postponed the first cut until the end of 2024.

The progress in sales shows the consumer continues to benefit the economy, seemingly unafraid of rising prices. Spending reinforces the strength of the labor market and defies economists’ expectations of a slowdown due to a decline in household savings linked to the epidemic.

“The death of the American consumer has been greatly exaggerated,” Omair Sharif, president of Inflation Insights LLC, says in a note. Including control group sales revisions, “this is a good overall report showing the continued strength of consumer spending.”

Sales in the control group, which excludes food services, auto dealerships, building material stores and gas stations, rose 6.4% year over year in the three months through September. This is the largest advance at the end of the quarter since June 2022.

The Federal Reserve Bank of Atlanta’s GDP forecast was raised to show that the economy grew 5.4% year over year in the third quarter, which would be the strongest since the end of 2021. Personal consumption is likely to rise by 4.1%, the fastest since the second quarter of the same year.

Elastic demand helps support the country’s manufacturers. The Federal Reserve’s US industrial production index rose to the highest level in nearly five years in September, supported by strength in the mining and manufacturing sectors. Industrial production strengthened last month thanks to a recovery in production of consumer goods and building supplies.

In the July-September period, industrial production was largely driven by an increase in utility production and a recovery in the mining sector. Which included increased oil and gas extraction. The manufacturing sector is also seeing stability as retailers make progress in matching their inventories to demand.

“Strong U.S. consumer continues to drive demand and factories are moving forward despite numerous headwinds (including a UAW strike),” Priscilla Thiagamurthy, chief economist at BMO Capital Markets, said in a note.

“While this may not be enough for the Fed to stay on the sidelines in November, The resilience of the US economy means that the central bank’s mission to calm the economy and restore price stability may not be over yet.Thiagamurthy said.

Economists at Morgan Stanley raised their forecast for third-quarter GDP growth to 4.9% after Tuesday’s data. JP Morgan now expects 4.3% and Goldman Sachs raised its estimate to 4%.

Shopping increased in eight of 13 categories last month, with revenues increasing at restaurants, car dealerships and personal care stores. The retail sales report showed. Auto sales rose 1% in September, the largest increase in four months, despite higher financing rates.

Purchases at restaurants and bars — the only service sector category included in the report — rose 0.9% last month.

“As long as businesses continue to produce and hire, and consumers continue to spend, this could be a virtuous cycle,” said Kayla Bruhn, chief economist at Morning Consult LLC. “With all the headwinds from inflation and interest rates, you would think this would fall apart, but it appears to be working.”

Although inflation remains well above the Fed’s 2% target, prices of key consumer goods, including clothing and furniture, fell sharply last month. Lower prices help explain lower value entries at apparel and appliance retailers in September. Sales at clothing stores fell 0.8% in September, the first decline in six months.

What does Bloomberg Economics say…

“Strong retail sales in September increase the degree of consumer resilience. “Although consumer spending looks very strong in the third quarter, it is due to a temporary explosion in activity that is not sustainable.”

-Eliza Winger.

Retail trade figures largely reflect spending on goods, which limits the conclusions of this particular report. Actual spending on goods and services for September will be published later this month.

On the other hand, it was learned on Tuesday that home builders’ confidence fell in October to its lowest level in the past nine months. Confidence and sales have been under pressure for much of last year due to rising mortgage rates and rising house prices.

Read more at bloomberg.com