US economic data keep coming in stronger and defying forecasts

U.S. retail sales exceeded all forecasts and industrial production strengthened last month, fresh evidence of a resilient American consumer whose spending is helping stabilize manufacturing.

Sales, unadjusted for inflation, increased 0.7% after upwardly revised advances in the prior two months, according to the Commerce Department. So-called control group sales — which are used to calculate spending on merchandise in the gross domestic product report — rose a better-than-expected 0.6%.

Robust consumer demand, in the aftermath of September data showing stubborn inflation and surging job growth, risks prompting the Federal Reserve to raise interest rates again. The reports prompted a slew of economists, from Goldman Sachs Group Inc. to JPMorgan Chase &Co. and Morgan Stanley, to boost their tracking estimates for third-quarter GDP. The 10-year Treasury yield jumped to the highest level since 2007, while the S&P 500 Index fell. Traders increased bets of a rate hike in the coming months and pushed bets on the first cut to later in 2024.

The advance in sales illustrates a consumer who is still delivering for the economy, seemingly undaunted by high prices. Spending is being fueled by a robust labor market and defying economists’ expectations of a slowdown on the back of a retreat in pandemic-related household savings.

“The death of the U.S. consumer has been greatly exaggerated,” Omair Sharif, president of Inflation Insights LLC, said in a note. Including control group sales revisions, “this is a good all-around report that shows continued strength in consumer spending.”

Control group sales, which exclude food services, auto dealers, building materials stores and gasoline stations, rose an annualized 6.4% in the three months through September. That’s the largest end-of-quarter advance since June 2022. Resilient demand is helping to shore up the nation’s manufacturers. The Fed’s index of U.S. industrial production rose in September to the highest level in nearly five years, led by strength in the mining and manufacturing sectors. Factory output last month was bolstered a pickup in the production of both consumer goods and construction supplies.

In the July-to-September period, industrial production was largely fueled by a surge in utility output and a pickup in mining that included higher oil and gas extraction. Manufacturing is also finding some footing as retailers make progress getting inventories more in line with demand.

“The mighty U.S. consumer continues to fuel demand and factories pushed ahead despite several headwinds (including the UAW strike),” Priscilla Thiagamoorthy, senior economist at BMO Capital Markets, said in a note.

“While this may not be quite enough to move the Fed from the sidelines in November, a resilient U.S. economy means the central bank’s job to cool the economy and restore price stability may not be done yet,” Thiagamoorthy said.

Morgan Stanley economists boosted their third-quarter GDP growth forecast to 4.9% on the back of Tuesday’s data. JPMorgan now sees 4.3% and Goldman Sachs lifted its estimate to 4%.