US Economy on Solid Ground as Retail Sales Surprise on The Upside

• U.S. retail sales unexpectedly rose in August as a decline in receipts at auto dealerships was more than offset by strength in online purchases. This suggests that the economy remained on solid footing through much of the third quarter.
• The report from the Commerce Department on Tuesday also showed retail sales were a bit stronger than initially thought in July. It combined with the decline in the unemployment rate last month to push against financial market expectations for a half-percentage-point interest rate cut from the Federal Reserve on Wednesday. U.S. central bank officials started a two-day policy meeting on Tuesday.
• The Atlanta Fed raised its third-quarter GDP growth estimate to a 3.0% annualised rate from a 2.5% pace after the data. This would be on par with the 3.0% economic growth in the second quarter. "There does not appear to be any reason for Fed officials to start out with a larger 50 basis points rate cut because whatever stress there is in the labour market, it isn't translating into weaker economic demand," said Christopher Rupkey, chief economist at FWDBONDS. "If this is an economy on the brink of recession, consumers certainly don't see it," he added.
• Retail sales increased 0.1% last month after an upwardly revised 1.1% surge in July, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, falling 0.2% after a previously reported 1.0% jump in July. Estimates ranged from a 0.6% decline to a 0.6% gain. Retail sales also increased 2.1% on a year-on-year basis in August. Online store sales rebounded 1.4% after falling 0.4% in July. Sales at gasoline stations dropped 1.2%, reflecting lower prices at the pump. Cheaper gasoline is likely freeing money for other spending.

(Source: Reuters)