Consumer spending was expected to hold strong in September — possibly even more than forecast and enough to throw another wrinkle into the Federal Reserve’s thought process. The Census Bureau’s retail sales report Thursday morning is likely to show a monthly increase of 0.3%, a number that is adjusted for seasonal factors but not inflation, according to the Dow Jones consensus. That would show an increase of 0.1% in August and would be higher than the 0.2% inflation rate for the month as measured by the consumer price index. While that in itself would be a solid performance, indicating consumers are keeping pace with inflation, there are some signs it could be even stronger. Bank of America, for one, thinks the sales number excluding autos may have shot higher by 0.7%, well above the 0.1% forecast and a sign that the consumer end of the economy is powering higher . “A month ago, the question was whether we are headed for a recession or a soft landing,” Bank of America economist Aditya Bhave said in a recent note. “If retail sales accelerate considerably, in our view, the narrative may shift further toward ‘no landing’ or even re-acceleration.” The bank bases its forecast on card spending data it tracks each month. For September, the data indicates sales accelerated by 0.6%, buoyed by department, general merchandise and clothing stores. “Monthly retail sales data can be volatile. But a report like the one we are forecasting would be significant” considering upward revisions to gross domestic product and gross domestic income, as well as “a gangbusters September jobs report.” Consumer spending makes up nearly 70% of GDP. If the report turns out that hot, the next question, as with all major economic reports, is what impact it could impart on the Fed and its nascent interest rate-cutting cycle . For now, Bhave thinks a strong sales report will “probably not. At least, not yet” hit Fed policy. He sees policymakers likely cutting their benchmark rate , now in a targeted range of 4.75%-5.0%, further unless the data gets appreciably stronger. “However, if economic activity is still surging when rates are closer to 4%, the Fed will likely start to seriously consider the risk that monetary policy is no longer restrictive,” he said. At the same time the retail report drops, the Labor Department will issue its weekly reading on initial unemployment claims. The number spiked higher last week to 258,000 , and is expected to stay right around that area, at 260,000. However, the uptick looks mostly traceable to hurricanes Helene and Milton in the Southeast as well as the Boeing strike that is hitting Michigan in particular.
