U.S. retail sales leapt higher last month, data from the Commerce Department indicated Tuesday, suggesting the U.S. consumer will continue to drive economic growth, and possibly fan inflation pressures, into the autumn months.
Headline retail sales rose 0.7% from August levels, to a collective total of $704.9 billion, the Commerce Department said, the highest reading since January and more than double economists' forecasts of a 0.3% gain. The August total was revised higher, as well, to a gain of 0.8% from the prior estimate of 0.6%.
The closely-tracked control group number, which excludes autos, building materials, office suppliers, gas station sales and tobacco and feeds into the government's GDP calculations, rose 0.6% following a 0.2% gain in August, perhaps fueled by the resilient job market, which added 336, new positions over the month of September.
Gasoline station sales were up 0.9%, the release indicated, after Energy Department data shows the national average rose by just 0.04 cents, to $3.958 per gallon, a marked slowdown when compared to the 10.3% surge that occurred over the month of August.
That may have left extra room for spending in discretionary categories, such as restaurants and apparel stores, as consumers continue to defy slowdown forecasts amid an historically resilient labor market that looks to offset renewed inflation concerns.
"Consumers were on fairly solid footing as they entered the final quarter of the year. However, investors need to look underneath the sales figures to get a better look on the health of the consumer," said Jeffrey Roach, chief economist for LPL Financial in Charlotte, North Carolina. "Rising use of credit and early signs of delinquencies could dampen some of the enthusiasm. The strong retail sales figures do not change market expectations that the Fed is likely done raising rates in this cycle."
U.S. stocks were mixed following the data release, with the S&P 500 falling 2 points by mid-day trading and the Dow Jones Industrial Average rising 5 points.
Benchmark 10-year Treasury note yields jumped 5 basis points higher, to 4.842%, while 2-year notes were pegged at 5.199%, the highest since 2006, reflecting the firmer discretionary spending tally and its implications for near-term inflation and Fed rate hikes.
The CME Group's FedWatch now suggests the Fed will hold its benchmark rate steady next month in Washington, at between 5.25% and 5.5%, with the odds of a December increase pegged at around 42%.
Consumer optimism in to the autumn is starting to soften, however, according to the preliminary October reading of the University of Michigan's benchmark survey, which showed a sharp decline in overall sentiment and a pick-up in one year inflation expectations.
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