A “soft landing” crushes the “recession narrative”! US retail sales data exceeded expectations, and the “control group” hit a three-month high

The Zhitong Finance App learned that the month-on-month increase in US retail sales in September was driven by widespread consumption growth, indicating that even in the face of heavy pressure from high interest rates for a long time, US consumer spending is still resilient and continues to provide a strong driving force for the US economy. According to the latest data released by the US Department of Commerce on Thursday, retail sales in the US unexpectedly rose 0.4% month-on-month in September (economists generally expect 0.3%) after a 0.1% month-on-month increase in August.

Excluding automobile and gas station consumption, retail sales increased 0.7%. So-called “control group sales” (the US government's project used to measure GDP commodity spending) also surged 0.7% month-on-month in September, the highest level in three months.

According to information, 10 of the 13 categories in the latest retail data report showed growth, mainly grocery retailers, including flower shops and pet stores. Clothing stores and other types of grocery stores have also seen steady growth progress. The reduction in the size of gas station receipts reflects the decline in the benchmark oil price at gas stations. This is basically in line with the recent weak trend in Brent crude oil and WTI crude oil prices. Car sales were almost flat — that is, there was no increase, but there was no decline, contrary to the strong growth expected by economists.

Restaurants and bars are the only service category in this retail sales data report. Consumer spending in this category increased 1% month-on-month last month, the highest in nearly a year, reflecting that American consumer spending on services is still very strong. This is also one of the main drivers of US economic growth.

Newly released retail sales data shows that, driven by a strong US labor market, consumer demand is still strong, and the US economy may once again achieve a steady quarterly growth trend.

Combined with the extremely strong non-farm payroll data released in early October, and the number of initial jobless claims in recent weeks is basically in line with expectations and showing a cooling trend. In addition, recent financial reports from Wall Street financial giants show that consumer spending patterns are still stable. Together, they show a spectacular picture of the “consumer giant wheel” continuing to drive the entire US economy forward.

As far as the US economy as a whole is concerned, consumer spending resilience will undoubtedly strongly drive the US economy to continue its journey. After all, 70%-80% of the US GDP component is closely related to consumption, so the newly announced retail sales and strong non-farm payroll data can be described as completely shattering the market's grand narrative logic that the US economy is about to fall into recession. Economists have begun to chant that the US economy has already “soft landed” after a series of recent optimistic economic data was released.

Although the retail sales data report is of little help to push the Federal Reserve to cut interest rates by 25 basis points to 50 basis points next month — interest rate futures market bets show that traders still expect interest rate cuts of 25 basis points next month, it further proves that the US economy has shown few signs of substantial decline so far. Also, after the release of strong consumption data, some economists said that the Federal Reserve would cut interest rates by 25 basis points quarterly, as anticipated by the FOMC bitmap, “adding fuel” to consumer spending and the US economy.

After the retail sales data report was released, US Treasury bond yields for various maturities, futures on the three major stock indexes, and the US dollar rose one after another.

The data also showed that in September, so-called control group sales (the data on which the US government calculates gross domestic product commodity expenditure) unexpectedly soared 0.7% month-on-month, hitting the highest level in three months, far exceeding economists' expectations. The sales data for this statistic does not include consumption expenses related to food services, car dealers, building materials stores, and gas stations.

In the three months up to September, so-called control group sales grew strongly at an annualized rate of up to 6.4%, the strongest increase since the beginning of 2023. Prior to the release of this retail sales report, the Atlanta Federal Reserve's GDPNow forecast showed that the annual benchmark growth rate for US personal consumption in the third quarter would reach 3.3%.

According to data released by the US Bureau of Economic Analysis at the end of last month, non-farm payroll data, which was not adjusted for price changes, increased 0.5% month-on-month in August, the highest statistical level in three months, indicating that consumers still have enough money to spend on consumption. The increase in non-farm payrolls in September was the strongest in six months. US employers drastically expanded more than 250,000 jobs in September, far exceeding economists' expectations.

The increase in non-farm payrolls and wage growth, along with a resilient increase in retail sales, can be described as providing the strongest support for the US economy's “soft landing” logic.

In terms of recent economic data, the newly announced retail sales continued to grow month-on-month, with higher-than-expected non-farm payrolls data, and a long-term GDP growth rate that exceeded expectations. In addition, the number of initial jobless claims in recent weeks was basically in line with expectations, and the steady decline in US inflation, the scenario outlined by these data perfectly matches the “soft landing” of the US economy expected by Federal Reserve officials. This is why some economists are calling for a successful “soft landing” of the US economy.

However, research by the Federal Reserve's economics team has always shown that consumers driving US economic growth are increasingly concentrated in people with higher income brackets, and they may enjoy huge wealth expansion effects from rising prices of financial assets such as stocks.