Consumer spending was expected to firm in September, possibly more than forecast and enough to throw another wrinkle into the Federal Reserve’s thinking process. The Census Bureau’s retail sales report on Thursday morning may show a monthly increase of 0.3%, a figure that is adjusted for seasonal factors but not inflation, according to the Dow Jones consensus. That would represent a 0.1% increase in August and would be higher than the 0.2% inflation rate for the month as measured by the consumer price index. While that alone would be a strong performance, indicating that consumers are keeping up with inflation, there are some signs that it could be even stronger. Bank of America, for one, thinks the number of non-auto sales is likely to increase by 0.7%, above the forecast of 0.1% and a sign that the end of the consumer economy is gaining strength. “A month ago, the question was whether we were headed for a recession or a soft zone,” Bank of America economist Aditya Bhave said in a recent statement. “If retail sales are too fast, in our view, the narrative may go ‘nowhere’ or even re-accelerate.” The bank bases its forecast on spending data it tracks every month. In September, data shows sales rose 0.6%, boosted by department, general merchandise and clothing stores. “Monthly retail sales data can be volatile. But a report like the one we’re forecasting can be important” given the upward revisions to gross domestic product and gross domestic income, as well as “September’s gang activity report,” Bhave said in the letter. . Consumer spending makes up about 70% of GDP. If the report comes out that hot, the next question, as with all major economic reports, is what effect it can convey to the Fed and its cycle of interest rate cuts. For now, Bhave thinks the strong sales report “will not … at least, not yet” affect Fed policy. He sees policymakers likely to cut their benchmark rate, now in the target range of 4.75% to 5.00%, unless the data becomes surprisingly strong. “However, if economic activity continues to grow when rates are close to 4%, the Fed will likely begin to consider the risk that monetary policy is no longer restrictive,” he said. Around the same time the retail report drops, the Labor Department will release its weekly reading on initial jobless claims. The number rose sharply last week to 258,000, and is expected to stay in that area, at 260,000. However, the uptick seems to be largely traceable to Hurricanes Helene and Milton in the southeast and the Boeing strike that hit Michigan in particular.
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