Dive Brief:

• Retail sales rose a higher-than-expected 0.4% last month after a 0.1% gain in August, highlighting the strength of the U.S. consumer and bolstering recent upgrades in forecasts for 2024 economic growth.
• Sales in 10 out of 13 retail categories increased, including apparel, grocery stores and miscellaneous retailers such as florists and sellers of used merchandise, the Commerce Department said Thursday. Sales fell at gas stations and at furniture and electronics stores.
• “Consumer resilience is shining through after another hotter than expected data release,” Michelle Cluver, head of ETF Model Portfolios at Global X, said in an email.

Dive Insight:

Economists at Fannie Mae and other firms have recently marked up their forecasts as the economy shows signs of vitality despite persistent weakness in manufacturing and a slowdown in hiring early in the summer.

“Stronger-than-expected job gains in the August employment report and sizable upward revisions to personal income data paint a picture of a more sustainable consumer spending trend going forward than had been thought just a month ago,” Fannie Mae said Thursday.

“While we still anticipate a slowing in economic growth, we’ve made a meaningful upward revision to our real gross domestic product outlook,” Fannie Mae economists said. They upgraded estimates for growth this year to 2.3% from 2%, and for next year’s growth to 2% from 1.8%.

The higher estimates still fall short of the 3.2% expansion last year, Fannie Mae economists said. Also, “the long-term potential growth rate of the economy depends on several factors, including future productivity growth and immigration flows, both of which at this point remain highly uncertain.”

The report of strong retail sales in September conflicts with an unexpected dip in consumer confidence this month, as measured by the University of Michigan’s index of consumer sentiment.

Although inflation has slowed this year, “consumers continue to express frustration over high prices,” Joanne Hsu, director of the university’s survey, said in a statement. Also, as the Nov. 5 election approaches, “some consumers appear to be withholding judgment about the longer-term trajectory of the economy.”

Still, consumer sentiment is 8% higher than 12 months ago and 40% above June 2022, Hsu said, citing the index.

The report of robust retail sales also aligns with the view of traders in interest rate futures who see no chance that the Federal Reserve will repeat its move in September and cut the benchmark interest rate by a half percentage at a Nov. 6-7 meeting, according to the CME FedWatch Tool. A month ago, traders saw 29% probability of such a reduction.

The odds are 90% that policymakers at the meeting will trim the main interest rate by a quarter point, according to the FedWatch Tool. The federal funds rate is currently at a range between 4.75% and 5%.

In a sign that at least one corner of the economy may need a boost from lower borrowing costs, industrial production fell 0.3% last month, the Fed reported Thursday, noting the impact from a strike at Boeing and two hurricanes in the southeast U.S.