Could September Sales Data Spark a Fed Interest Rate Cut? By: Stock Market Charlie

Stock Market Charlie addresses an attentive audience in a grand hall, emphasizing key points with compelling charts and graphs displayed on a screen.

Key Takeaways

• U.S. retail sales decelerated in September, falling short of economists' expectations, which suggests a potential decline in consumer momentum.

• Conversely, wholesale inflation increased as anticipated in the September data released on Tuesday, following a delay due to the government shutdown.

• Economists indicated that this data might bolster the argument for the Federal Reserve to reduce interest rates next month.

As summer concluded, consumer activity cooled, potentially facilitating another interest rate reduction.

Federal Reserve officials likely gained a clearer view of the economy in September with the release of data on Tuesday, which had been postponed due to the government shutdown. Retail sales were slower than anticipated, and wholesale inflation remained moderate. Economists suggested that this data positions the Fed to consider another interest rate cut during its upcoming meeting in a few weeks.

“Softer retail sales and producer price figures could encourage the Federal Reserve to consider another rate cut in December,” stated Sal Guatieri, senior economist at BMO Economics.

The data emerges as Federal Reserve officials have shown a divergence in opinions regarding whether the central bank should reduce rates in its upcoming decision on Dec. 10. Persistently high inflation leads some officials to believe that the Fed should maintain current rates, while others, observing a weakening job market, suggest that further cuts are necessary to stimulate the economy.

Slower Sales Could Indicate Sluggish Economic Growth

Increases in healthcare spending, furniture store sales, and expenditures at restaurants and bars contributed to the rise in retail sales over the month. However, sales decreased at sporting goods stores, clothing retailers, electronic stores, and online retailers compared to August data. Auto sales declined despite the expiration of the government’s electric vehicle credit in September, which some economists had anticipated would boost sales.

“Many consumers, particularly those from middle- and lower-income households, are experiencing significant financial pressures, compelling them to prioritize value when shopping,” stated Nationwide Chief Economist Kathy Bostjancic.

The decline in sales reports may suggest a potential slowdown in the economy. Retail sales categories that contribute to the gross domestic product calculation have decreased, which could lead to weaker third-quarter outcomes, according to economists.

“The economy cannot afford to lose consumer support, especially as we approach the crucial holiday season,” wrote Bret Kenwell, U.S. investment and options analyst at eToro US. “Considering that personal consumption constitutes approximately two-thirds of the U.S. GDP, a decline in consumer spending would not bode well for the overall economy.”

Best Regards,

Stock Market Charlie