US consumer spending was unexpectedly high in August despite a slowdown on the labour market.The US Department of Commerce Census Bureau reported that retail sales rose by 0.1 percent after a 1.1 percent increase in July which was upwardly revised.
Reuters polled economists who predicted that retail sales (which are mainly goods and not adjusted for inflation) would fall by 0.2 percent after a previous reported 1 percent jump in July. Estimates ranged between a 0.6% decline and a 0.6% gain.The report was released as US Federal Reserve officials gathered for a 2-day policy meeting.
Most economists expect the US central bank to cut interest rates by 25 basis points on Wednesday, arguing that the economy is not in distress to warrant the half-percentage-point reduction anticipated by financial markets.
Olivia Cross, North America Economist at Capital Economics in London, said that “although it will be close and financial markets still price in about a 65% chance of a 50% reduction from the Fed…we still think the broader data is more consistent with an 25 basis-point move.”After four consecutive monthly increases, the unemployment rate dropped to 4.2 percent last month. It had reached a near three-year high in July of 4.3 percent.
The number of layoffs is low, compared to historical norms. This allows the labour market to continue producing wage increases that boost consumer expenditure. The implications of a falling saving rate on consumer spending are divided among economists.Some economists believe that the savings rate, which fell to 2.9% in July, is a sign of reduced spending in the second half of the year.
Others have claimed that the government does not capture all income earned by illegal immigrants. The strong balance sheets of households, along with the rising house and stock values, were also cited as a positive factor for future consumer spending.Since 2022, the Fed has kept its overnight benchmark interest rate at 5.25 to 5.5 percent. It had previously raised it 525 basis points between 2022 and 2023.
Retail sales, excluding cars and petrol, building material, food, and building materials, increased by 0.3% last month, after increasing by a upwardly revised 0.4% in July.
Five of the thirteen sales categories monitored by the Commerce Department showed an increase. Clothing, furniture, and electronics and appliances sales fell. Online retailers reported an increase of 1,4% in sales.
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