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US consumer spending may spur rate hike
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US consumer spending appeared to grow at a fairly healthy pace halfway through the third quarter, pointing to solid domestic demand that could persuade a cautious Federal Reserve to hike interest rates tomorrow.
The Commerce Department said retail sales excluding automobiles, gasoline, building materials and food services added 0.4 percent in August after an upwardly revised 0.6 percent gain in July.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product and were previously reported to have risen 0.3 percent in July. It was the latest indication of sturdy economic momentum and suggested the recent stock market sell-off had little immediate impact on consumer spending.
“Today’s data are positive news for final demand in the third quarter and should give the Fed more confidence in the spending outlook,” said Laura Rosner, an economist at BNP Paribas in New York.
Signs of sustained strength in the economy could encourage the US central bank to raise its benchmark overnight interest rate from near zero. The Fed’s policy-setting committee meets today and tomorrow against the backdrop of a tightening US labor market, low inflation and slowing global growth.
US financial markets have sharply dialed down expectations of a rate hike in the wake of the recent volatility in global equity markets and are now pricing in a 25 percent probability that the Fed will announce a rate hike this week.
Data ranging from employment to housing have suggested the US economy retained most of its pace from the second quarter, when output grew at a 3.7 percent annually. Consumer spending grew at a 3.1 percent rate during the same period.
Overall retail sales rose 0.2 percent last month as strong gains in auto sales were offset by a 1.8 percent drop in the value of sales at service stations due to a decline in gasoline prices.
Economists polled by Reuters had forecast retail sales rising 0.3 percent in August.
Receipts at auto dealerships rose 0.7 percent last month after rising 1.3 percent in July. Sales at clothing stores added 0.4 percent, at building materials and garden equipment stores fell 1.8 percent. Sales at furniture stores fell 0.9 percent.
There were sales gains for online retailers, restaurants and bars, sporting goods and hobby stores, and electronics and appliance outlets.
Other data yesterday, however, showed manufacturing continuing to struggle under the weight of a strong dollar and softening global demand. A separate report from the Federal Reserve showed manufacturing output fell a sharper-than-expected 0.5 percent as auto production slid, after a rise of 0.9 percent in July. Excluding autos, factory output was unchanged.
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