WASHINGTON (Oct 17): US retail sales increased solidly in September likely as lower gasoline prices gave consumers more money to spend at restaurants and bars, supporting the view that the economy maintained a strong growth pace in the third quarter.

The slightly stronger-than-expected rise in sales reported by the Commerce Department on Thursday also reflected sharp increases in receipts at clothing store outlets as well as miscellaneous store retailers. Consumers boosted online purchases and spent more at health and personal care stores.

Spending and the overall economy are being underpinned by solid income growth, ample savings as well as strong household balance sheets. Though labor market momentum has slowed, layoffs remain historically low, supporting wage gains.Signs of the economy’s resilience likely will not discourage the Federal Reserve from cutting interest rates again next month, but will cement expectations for a smaller 25-basis-point reduction in borrowing costs.

“Strong consumer spending in September suggests economic growth in the previous quarter was solidly above trend,” said Jeffrey Roach, chief economist at LPL Financial. “Our baseline remains that the Fed will likely cut a quarter of a percent in both November and December.”

Retail sales rose 0.4% last month after an unrevised 0.1% gain in August, 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, would rise 0.3%. Estimates ranged from no change to an increase of 0.8%.

Jobless claims fall

A separate report from the Labor Department showed initial claims for state unemployment benefits dropped 19,000 last week to a seasonally adjusted 241,000 last week, but the impact of hurricanes and a month-long strike at Boeing are making it harder to get a clear read of the labour market. Economists had forecast 260,000 claims for the latest week.

Claims jumped to more than a one-year high in the prior week, which was attributed to Hurricane Helene. The storm devastated Florida and large swathes of the US Southeast in late September. The ebb in filings from Helene is likely to be offset by an anticipated deluge of claims due to Hurricane Milton, which slammed into Florida weeks after Helene.

The claims report covered the week during which the government surveyed employers for the non-farm payrolls component of October’s employment report. Economists expect policymakers won’t place too much weight on the employment report when they meet in early November. The report will be released days before the Nov 5 US presidential election.

The US central bank embarked last month on its easing cycle with an unusually large half-percentage-point cut in its policy rate, lowering it to the 4.75%-5.00% range, amid growing concerns about the labor market. The Fed hiked rates by 525 basis points in 2022 and 2023 to curb inflation.