In the United States, an increase in retail sales was recorded in August, which was evidence that one of the main driving forces of the positive dynamic economic system of this country remains in force, despite various difficulties, including inflation that has not been fully overcome and continuing uncertainty about the scenarios of the future.
It is worth noting that the growth of the mentioned indicator last month came as a surprise to many experts and observers. According to media reports, the positive result, which testified to the significant stability of the economic system of the United States, became a fact of material reality in its kind of financial dimension because the decrease in the level of receipts in auto dealerships was more than offset by an increase in consumer activity on virtual platforms related to the e-commerce sector. Also, the August indicator can be interpreted as one of the forms of manifestations of what can be described as the basis of the strength of the US economy. Moreover, last month’s results indicate the resilience of the corresponding system for most of the third quarter.
Information about the dynamic of retail sales is contained in a report published by the Commerce Department of the United States on Tuesday, September 17. This report also contains data according to which the mentioned indicator in July slightly exceeded the volumes provided for by preliminary expectations and forecasts.
It is worth noting that the August figures were another fact of the economic reality observed in the United States, in favor of the fact that the Federal Reserve System will begin implementing measures to ease monetary policy. Currently, it is expected that the US central bank on Wednesday, September 18, will decide on lowering the cost of borrowing by a half-percentage-point. Also, forecasts for the imminent cutting of interest rates by the financial regulator of the United States have strengthened in the markets after data were published in the first week of the current month, according to which the unemployment rate in the US amounted to 4.2% in August after rising to 4.3% in July, which caused an active circulation of fears about the risk of recession.
Christopher Rupkey, chief economist at FWDBONDS, says that Fed officials probably have no reason to start easing monetary policy by lowering the cost of borrowing by a larger 50 basis points. The expert explained this assumption by saying that regardless of the level of stress in the labor market, the actions of the central bank of the United States will not provoke a drop in economic demand. Christopher Rupkey says that if this is an economy on the brink of recession, consumers certainly don’t see it.
In August, retail sales in the United States showed an increase of 0.1%. The relevant data was published by the US Commerce Department’s Census Bureau. Also, data on the dynamic retail sales in the United States in July were revised upward. According to a new estimate, retail sales in the US increased by 1.1% in the mentioned month.
It is worth noting that most experts interviewed by the media predicted that retail sales in the United States would fall by 0.2% in August after the July growth. At the same time, some analysts expected an increase to 0.6%, but this assumption was not widespread.
It is also worth noting that the mentioned data provides for a monthly comparison. In August, retail sales in the United States showed an increase of 2.1% compared to the result recorded for the same period in 2023.
Sales volumes in US online stores grew by 1.4% last month after falling by 0.4% in July. The volume of sales at gasoline stations in August showed a decrease. Last month, the corresponding indicator fell by 1.2%. This result reflects a decrease in prices at the pump. According to the media, cheaper gasoline is likely to generate additional opportunities for other spending.
Sales in US stores of hobby goods, sporting goods, musical instruments, and books showed an increase of 0.1% in August. An upward dynamic was also recorded in the sales area of building materials and garden equipment. In stores in this category, the corresponding indicator increased by 0.1% in August.
In the food services and drinking places, the only segment of the service sector mentioned in the report published on Tuesday, sales were unchanged compared to the July result. In this case, the indicator increased by 0.2%. It is worth noting that economists characterize dining out as one of the main figures of the financial situation in which households are in.
Sales at furniture stores in the United States fell 0.7% in August. Sales at electronics and appliance outlets decreased by 1.1%. In clothing stores, the corresponding indicator fell by 0.7%. Also, the downturn dynamic was recorded at motor vehicles and parts dealers. In this case, sales fell by 0.1%.
According to CME Group’s FedWatch Tool, financial markets estimate a roughly 67% probability that the central bank of the United States will cut interest rates by 50 basis points on Wednesday. It is worth noting that the corresponding indicator has hardly changed compared to its configuration, which was observed before the retail sales data were published in August. At the same time, financial markets estimate at about 33% the probability that on Wednesday the central bank of the United States will lower the cost of borrowing by a quarter point. This indicator also showed no changes compared to the expectations observed before the information on the dynamic of retail sales was published in August.
Against the background of the mentioned data, the dollar was trading lower against a basket of currencies. At the same time, the yield on United States Treasury bonds showed a dynamic of growth.
It is worth noting that for more than a year, the US central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range. Also, it is worth mentioning that in 2022-2023, the financial regulator of the United States increased the corresponding indicator by 525 basis points. The Fed has begun to implement an aggressive monetary policy strategy as part of the implementation of measures to counteract the inflationary process.
Most economists surveyed by the media expect the central bank of the United States to cut interest rates by 25 basis points. In their opinion, the current state of affairs in the space of the US economic system is not enough distress to justify lowering the cost of borrowing by the half-percentage-point. It is worth noting that at the same time, financial markets perceive the present circumstances and conditions as a sufficient argument for such a scale of cutting of interest rates, which experts interviewed by the media identify as unlikely and not corresponding to the specifics of the observed situation.
Currently, the United States labor market is experiencing layoffs that can be described as historically low. Against the background of this circumstance, the process of stable wage growth is underway. The corresponding state of affairs is a favorable factor impacting the intensity of consumer spending. It is also worth noting that this situation is generally positive as a kind of structural element of the current configuration of economic reality in the United States.
Nowadays, there is no consensus among economists about what exactly will be the impact of reducing the saving rate on the dynamic of costs. Some experts who talked to media representatives say that the mentioned figure, recorded in July at 2.9%, is close to the level that was observed in 2008. In their opinion, the current saving rate signals softer spending in the future. They also say that the potential deterioration of the situation in the United States labor market may cause a drop in spending. The implementation of the corresponding scenario will mean an increase in savings for precaution.
Some economists who spoke with media representatives say that the United States government does not fully take into account the income of immigrants who do not have documents. These experts also draw attention to the strong balance sheets of US households against the background of rising housing and stock prices. They say that the corresponding state of affairs contributes to the future growth of consumer spending.
It is worth noting that excluding autos, gasoline, building materials, and food services, retail sales in the United States increased by 0.3% in August. It’s worth noting that the corresponding revised indicator grew by 0.4% in July.
The August upward dynamic and revised data for July indicate that consumer spending, which accounts for more than two-thirds of the United States economy, remained at a high level in the third quarter. In the second quarter, consumer spending accelerated in the US.
The media, citing experts, report the expectation that the United States economy will grow by about 2.5% year-on-year for the entire third quarter. In the previous quarter, the corresponding indicator increased by 3%.
Currently, consumer spending in the United States is above the level seen before the coronavirus pandemic. At the same time, surveys conducted by US financial institutions indicate that in the coming months, this indicator will have a slight pullback in the months to come.
In August, consumers surveyed by the Federal Reserve Bank of New York reported a 5% year-on-year increase in nominal household spending. In April, the corresponding indicator grew by 4.6%.
A survey by the mentioned financial institution indicates that the median expected monthly overall spending growth slowed to 3% in August. In April 2022, the corresponding figure reached a peak of 5.4%. At the same time, it is worth noting that the median expected monthly overall spending growth is currently still above the range observed in 2019, before the outbreak of the coronavirus pandemic, which became a kind of shock factor for the economy.
The results of a separate consumer survey conducted by Bank of America contain similar results. In this case, there was a decrease in spending expectations for both three-month and 12-month periods.
Robert F. Ohmes, research analyst at Bank of America Securities, says that the US consumer is gradually becoming more discerning in its approach to spending. The expert said that a more cautious approach is probably more related to the so-called wallet shift, but not to fears of unemployment. Robert F. Ohmes noted that during the decade preceding the coronavirus pandemic, food prices remained relatively stable and underlined that the growth rate of the corresponding indicator over the past five years did not exceed 1%.
It is worth noting that the data released on Thursday will certainly be taken into account by the Fed when deciding on monetary policy easing, but at the same time, it will not become the most important factor in the relevant issue. The confidence of markets, experts, and economists that the central bank will start lowering the cost of borrowing is actually maximum. At the same time, the scale of the relevant actions is still unknown. However, within the framework of the mentioned expectations, there is confidence that the central bank of the United States will refrain from high-intensity moves in the context of monetary policy easing.
It is noteworthy that among Fed officials, who traditionally support the so-called hawkish position and insist on holding high interest rates for as long as possible to combat inflation, there are already those who support lowering the cost of borrowing. For example, this month Atlanta Federal Reserve President Raphael Bostic announced his readiness to ease monetary policy. Also in this context, he noted that, in his opinion, the fact that inflation in the United States has not yet reached the US central bank’s target of 2% should not be an obstacle to cutting interest rates. In July, inflation in this country was fixed at 2.5%. Raphael Bostic says that a belated decision in the context of making changes to the concept of monetary policy may cause disruptions in the labor market.
It is also worth noting that recently a kind of consensus position has been formed among officials of the central bank of the United States, according to which it is necessary to obtain the maximum possible amount of information about the condition of the US economic system and the further prospects of the dynamic of the corresponding situation, before deciding on cutting interest rates.
