US economic pulse narrows Fed's 25bp cut bet amid retail boost, jobless drop
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The news: Data released Thursday showed retail sales accelerated in the US and jobless claims slowed for a second week, suggesting a 25 basis point cut at the Fed’s September meeting is almost certain and more probable than a bigger reduction.
The numbers: US retail sales surged 1% in July, the strongest increase since early 2023, driven by a rebound in car sales and gains in electronics and appliances, according to data from the Commerce Department. Sales excluding autos and gasoline rose 0.4%.
Meanwhile, initial jobless claims dropped to the lowest level since early July, with a 7,000 decrease to 227,000. The median forecast by a Bloomberg survey of economists was 235,000 applications.
Rounding out the data in the US was a decline in industrial output by 0.6% in July, impacted by Hurricane Beryl and reduced motor vehicle production.
The context: The data boosts expectations the Federal Reserve will cut interest rates at its mid-September meeting amid cooling inflation and rising unemployment. The only question is the magnitude of the cut from the current 5.25% to 5.5% range.
With Fed officials increasingly focusing on the labour market, the upcoming jobs report on 6 September will be crucial for the central bank’s decision.
What they said: “Stronger retail sales and jobless claims numbers have provided evidence to suggest a 25bp cut at the September FOMC looks more likely than a 50bp cut right now,” said ING international economist James Knightley.
“Nonetheless, with Fed officials emphasising a growing focus on the labour market, the 6 September jobs report is what will determine what happens.”
The sources: US Department of Commerce , Bureau of Labor Statistics , Bloomberg
