‘Recession fears appear overblown’ as retail sales rise

Retail sales rose 0.1 percent from July to August after rising the most in a year and a half in the previous month, the Commerce Department said on Tuesday. Online retailers, sporting goods stores and home and garden stores reported higher sales.

The data indicates that consumers are still able and willing to spend more, despite the cumulative impact of three years of excess inflation and higher interest rates designed to combat these price increases. Average paychecks, especially for lower-income Americans, also rose sharply after the pandemic, allowing many Americans to keep spending even as many necessities became more expensive.

The impact of inflation and consumer health has been an ongoing issue in the presidential campaign, with former President Donald Trump blaming the Biden-Harris administration for post-pandemic price increases. Vice President Kamala Harris, for her part, charged that Trump’s claim that he would impose tariffs of 10 percent to 20 percent on all imports would amount to a “Trump tax” that would raise prices even more.

A slowdown in hiring and a recent rise in the unemployment rate have fueled concerns that the economy is unraveling, but steady spending should boost growth. The Atlanta branch of the Federal Reserve estimates that the economy grew at a solid annual rate of 2.5 percent in the third quarter.

“With consumption still very healthy, recession fears seem overblown for now,” said Olivia Cross, North America economist at Capital Economics.

Fed rate cuts a big question

The Fed could provide an additional boost to consumers and the economy by reducing borrowing costs. It is likely to cut its key rate at its meetings in November and December, as well as on Wednesday. Such cuts should, over time, lower mortgage, car loan and credit card rates. Average mortgage rates have already fallen in anticipation of Fed action.

Consumers have shown signs of stress, with credit card debt rising and savings rates falling.

Sales rose 1.4 percent at online retailers in August and rose 0.7 percent at health and personal care stores. However, for restaurants and bars, they were unchanged, a sign that consumers are holding back on some discretionary spending.

Gas stations reported a 1.2 percent drop in sales, which largely reflected a drop in prices last month. Car sales also fell.

On Wednesday, Fed policymakers will decide whether to cut their key interest rate by the usual quarter point or half a point higher than usual, from the current level of around 5.3%, a 23-year high .

Wall Street is increasingly expecting a half-point cut. With inflation returning to the Fed’s 2 percent target, many economists also argue that the central bank doesn’t need to keep rates so high. At the same time, some Fed policymakers who fear inflation could remain stuck at the current 2.5% level may be reluctant to cut rates so quickly. They could point to strong retail sales as evidence that there is no need to rush to cut rates.

One reason why inflation fell from a four-decade high of 9.1% in June 2022 was consumers’ reluctance to pay some of the higher prices they encountered at grocery stores, restaurants and convenience stores. clothing. Instead, shoppers traded in store brands, looked for deals or spent more at discounters. Some packaged food manufacturers, fast-food restaurants and retailers such as Target have responded by cutting prices or offering deals to attract shoppers.