Quick Bites | US Consumers Remain Strong

Strong US retail sales data and Walmart’s robust results have boosted Wall Street and investor confidence, suggesting the US economy will avoid a recession and achieve a soft landing.

Retail sales rose by 1.0% in July, the largest increase in 18 months, far exceeding the forecasted 0.3%. Walmart shares jumped 6.6% after reporting a 4.2% year-on-year rise in same-store sales and raising its profit forecast.

Consumer spending is the key driver of the US economy, accounting for roughly two-thirds of gross domestic product (GDP). The retail sales report, which is not adjusted for inflation, pointed to resilience in consumer spending and provided reassurance after recession fears, tied to weaker-than-expected employment numbers, had caused a market sell-off early this month.

Additionally, recent data showed lower-than-expected initial jobless claims at 227,000 suggesting the US labour market remains in reasonable health. US stocks rose, and government bonds sold off after the data release. The Nasdaq, while gaining 2.3%, remained slightly below its July 31 close, and the yield on the two-year Treasury note climbed 17 basis points to 4.12%, calming recessionary fears.

As inflation continues to subside, with US inflation falling below 3% last month, the Fed is now shifting its focus from reducing inflation to preserving health of the labour market and potentially signalling rate cuts in September.

US Retail Sales – 12 Months

Source: Trading Economics