U.S. Retail Sales Rise More Than Expected in July

(Reuters) – U.S. retail sales rose more than expected in July, helping to alleviate financial market concerns about a sharp economic slowdown spurred by a rise in the unemployment rate.

Another report indicated a smaller than expected increase in unemployment benefit claims, suggesting resilience in labor market conditions, which helped boost stock futures, Treasury yields, and the dollar.

Futures traders increased the probability to about 75% that the Federal Reserve will ease rates by 25 basis points in September, after the Commerce Department reported retail sales increased by 1.0% last month, following a downwardly revised 0.2% drop in June. Economists surveyed by Reuters had predicted retail sales to increase by 0.3%.

MARKET REACTION:

• STOCKS: S&P 500 (SPX) opened more than 1% higher
• BONDS: The yield on benchmark U.S. 10-year notes rose to 3.947%, while the two-year note yield jumped to 4.097%
• FOREX: The dollar index increased by 0.5%

COMMENTS:

David Doyle, Head of Economics, Macquarie, Toronto

“The report isn’t quite as favorable for disinflation as June, but it sets a high standard. Overall, it reinforces the intact disinflation trend, suggesting the Fed may proceed with a rate cut in September, likely by 25 basis points.”

Tom Graff, CIO, Facet, Phoenix, Maryland

“Retail sales are volatile month-to-month, so we should be cautious in interpretation. Walmart raised their 2024 outlook, indicating consumers are spending. This reduces pressure on the Fed to cut rates too quickly.”

Peter Cardillo, Chief Market Economist, Spartan Capital Securities, New York

“Today’s retail sales data show a stronger-than-expected consumer pulse. It alleviates recession fears but may not be favorable for the bond market. Expect a 25-basis-point cut from the Fed in September.”

Steve Wyett, Chief Investment Strategist, BOK Financial, Tulsa, Oklahoma

“This data diminishes fears of imminent recession, moving 50 basis points off the table for September. However, a 25 basis-point cut makes sense due to easing inflation.”

Chris Larkin, Managing Director, Trading and Investing, E*TRADE from Morgan Stanley, New York

“Today’s data didn’t present any surprises. Continued positive data could relieve concerns about recession and lessen the urgency for aggressive rate cuts from the Fed.”

Bret Kenwell, U.S. Investment Analyst at eToro, Petoskey, Michigan

“The retail sales report exceeded expectations, marking a return to an environment where good news is good news. Combined with lower jobless claims, worries about economic softness are subsiding. While a rate cut remains appropriate, today’s data buys the Fed some time until the September meeting.”