Economists had high praise for July's retail sales numbers on Thursday, but they believe that the Federal Reserve will still cut rates in September in the face of rising unemployment.
"Today's retail sales numbers were a blowout versus consensus, but more importantly it should lay to rest (at least for the moment) all of the doom and gloom that was expressed at the beginning of this month," Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in a note Thursday.
"If the economy continues to be resilient - especially in conjunction with slowing inflation - then the Fed can begin a rate cutting cycle without the economy entering recession and history shows this is an extremely positive environment for the stock market."
Retail sales rose 2.7% in July from a year ago, up from a downwardly revised year-over-year 2% upswing in the prior month.
On a monthly basis, retail sales that excluded motor vehicles and parts edged up 0.4% from June to July, below an upwardly revised 0.5% improvement from May to June but exceeding economist forecasts of a 0.1% uptick, according to TradingEconomics.
After taking out gas, motor vehicles and part, retail sales picked up 0.4% in July from the previous month, down from a 0.8% rise in June.
Motor vehicle and parts dealers saw the biggest monthly gain of 3.6%, while electronics and appliance stores saw a 1.6% increase in July from the prior month.
"Solid disposable income growth gave the consumer ample ability to keep the retail economy growing," said Jeffrey Roach, chief economist for LPL Financial.
"However, this report will not likely change the Fed's calculus about cutting rates in September."
He noted that Atlanta Fed President Raphael Bostic said the Fed cannot afford to be late in cutting rates as unemployment increases, and that investors should expect more volatility in the near term as economic data gives conflicting signals.
Initial unemployment benefits came in at 227,000 for the week ending Aug. 9, down from 234,000 in the prior week and narrowly missing a forecasted 235,000. The unemployment rate rose by 0.2% to 4.3% in July.
The four-week moving average of weekly jobless claims declined from 241,000 to 236,500, while continuing claims fell from a revised 1.871 million to 1.864 million, missing the expected 1.88 million.
"The economy is maintaining an encouraging glide path down to a more normal state and a soft landing," Oren Klachkin, financial market economist at Nationwide, told CNN.