Recent polling data from Gallup finds the highest percentage of U.S. voters rating the economy as an “extremely important” influence on their upcoming vote for president since 2008 amid the Great Recession.
How the current state of the U.S. economy impacts those voting decisions remains to be seen, but a pair of federal reports released Thursday reflect continued trends in positive economic news. Consumer spending in September far outpaced expectations and jobless claims showed an unexpectedly sharp decline last week.
And with two-thirds of the U.S. economy powered by consumer spending, voters themselves are the main drivers of the current resilience cycle.
The U.S Census Bureau’s monthly retail sales report for September finds consumers spent $714.4 billion last month, an increase of 0.4% from August and up 1.7 % from September 2023. Total sales for the July 2024 through September 2024 period were up 2.3% from the same period a year ago.
Economists widely expected a more moderate overall retail sales increase of 0.1% in September.
Retail trade sales were up 0.3% from August and came in 1.4% higher than the same month last year. Non-store retail sales shot up 7.1% from 12 months ago while sales by food service businesses and drinking establishments were up 3.7% from September 2023.
The report follows a move by the U.S. Federal Reserve last month to cut its federal funds rate by 0.5%, the first reduction to the monetary body’s benchmark rate in four years. The reduction moved the Fed’s overnight intrabank lending rate to the 4.75% to 5% range. The decision follows a protracted policy effort by the Fed to cool down an overheated U.S. economy and high inflation wrought by the broad impacts of COVID-19 on the domestic and global economies. Before the adjustment, the federal funds rate had stood at 5.25% to 5.5% since last summer and was the highest in 23 years after a series of 11 straight increases levied earlier by the monetary body in its efforts to quash red-hot U.S. inflation.
What about unemployment?
While U.S. inflation has moved near the Fed’s target annual rate of 2%, the body has become more focused on the employment side of its two-part mandate in the face of a U.S. jobs market that has seen growth slow markedly alongside upticks in the unemployment rate.
Thursday’s retail report isn’t likely to upend an expected follow-up reduction when the Fed meets again early next month, but the data could keep the increment at a more typical .25% adjustment.
“Strong consumer spending in September suggests economic growth in the previous quarter was solidly above trend,” Jeffrey Roach, chief economist at LPL Financial, told Reuters on Thursday. “Our baseline remains that the Fed will likely cut a quarter of a percent in both November and December.”
A U.S. Labor Department report also released Thursday shows jobless claims for the week ended Oct. 12 were 241,000, down 19,000 from the previous week. The claims level came in well short of the 260,000 economists had forecast. The four-week moving average for weekly jobless claims now stands at 236,250, according to the new data.
“As we have long argued, consumer spending, net hiring and payroll income have been locked in a resilient and self-reinforcing virtuous cycle throughout this expansion, supercharged by gains in household wealth and labor supply,” Jonathan Millar, senior U.S. economist at Barclays, told Reuters. “Durable deterioration in consumer spending would require something to meaningfully undermine this cycle, such as increased precaution by consumers that lifts the saving rate or reluctance to hire by businesses, despite solid demand.”