The US Consumer Isn’t Flinching

The US Consumer Isn’t Flinching
Reda Farran, CFA

5 months ago2 mins

Mentioned in story

American consumers are still spending in earnest, seemingly unfazed by higher prices. US retail sales grew by 0.7% in September from the month before – well ahead of the 0.3% gain forecast by economists. Spending grew across most categories, with sales at specialty stores advancing the most, at 3%. Online sales and car purchases also grew at a strong monthly clip, both rising 1.1%. The two weakest sales categories were clothing and electronics, which actually declined 0.8%. But what really stands out here is that when factoring in September’s 0.4% monthly inflation rate, consumers seem to be more than keeping up with rising prices.

What’s more, the monthly retail sales data has now seen six-straight months of growth, defying economists’ prediction of a slowdown. See, experts have been expecting a sharp dent in consumer spending, with most Americans having used up all their pandemic-era savings, with student loan repayments recently restarting after more than three years of relief, and with much higher interest payments and gasoline prices also taking a toll. But that hasn’t happened (not yet, at least), and consumer spending – which accounts for around two-thirds of the US economy – is still buoyed by a strong labor market. Case in point: employers added a stunning 336,000 jobs in September, trouncing economist expectations yet again.

This resilience in consumer spending is prompting several investment banks to boost their third-quarter US economic growth forecasts. Morgan Stanley’s economists, for example, boosted their annualized growth forecast to 4.9% this week after the retail sales data. JPMorgan, meanwhile, now sees 4.3%, and Goldman Sachs lifted its estimate to 4%. And that all seems encouraging. However, there is one potential drawback to consider: a resilient US economy means the Federal Reserve’s job of cooling the country’s still-hot inflation might not be done quite yet, opening the door for another possible economy-slowing interest rate hike before the end of the year.

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