Retail Sales Rise 0.1% In August, More Than Expected, Trimming Odds Of Larger Fed Rate Cut

by

U.S. retail sales rose more than expected by 0.1% month-over-month in August, signaling a resilient consumer spending momentum in the middle of the third quarter.

Retail sales slowed significantly from July's upwardly revised growth; however, as they increased more than anticipated, this could boost the chances of a smaller interest rate cut when the Federal Open Market Committee releases its interest rate decision Wednesday.

Before the retail sales data was released, market-implied probabilities pointed to a 67% chance of a 50-basis-point rate cut, compared to a 33% likelihood of a smaller 25-basis-point cut, according to CME's FedWatch tool. As of midday Tuesday, FedWatch shows a 63% chance of a larger 50-basis-point cut and a 37% chance of a 25-basis-point cut.

August Retail Sales Report: Key Highlights

  • Retail sales rose by 0.1% on a monthly basis in August, beating the expected 0.2% decline as per TradingEconomics' consensus.
  • July's retail sales growth was upwardly revised from 1% to 1.1%.
  • On a year-over-year basis, retail sales eased from the upwardly revised 2.9% in July to 2.1% in August.
  • Excluding motor vehicles and parts, sales grew by 0.1% month-over-month, below the 0.4% growth in July and missing the expected 0.2% increase.
  • When excluding gasoline, motor vehicles, and parts, sales rose by 0.2% month-over-month in August, a slowdown from the 0.4% gain in July, and below the expected 0.3%
  • Among spending categories, the largest monthly gains were recorded in miscellaneous store retailers, up 1.7%, and nonstore retailers, up 1.4%.
  • Conversely, gasoline station, electronics and appliance stores experienced the steepest monthly decline, with sales dropping by 1.2% and 1.1% respectively.
Market Reactions: Dollar Strengthens, Treasury Yields Rise

The U.S. Dollar Index (DXY) - as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE: UUP) - strengthened following the retail sales report, driven by rising Treasury yields.

Yields on the policy-sensitive 2-year Treasury note surged by about 5 basis points to 3.59%, indicating falling odds for a larger Fed rate cut.

Stocks inched higher during Tuesday's premarket trading, with futures on the S&P 500 up 0.4% at 08:50 a.m. in New York. Nasdaq 100 futures were 0.6% higher.

On Monday, tech stocks closed in the red, with the Invesco QQQ Trust, Series 1 (NASDAQ: QQQ) falling 0.4%, dragged down by chipmakers as the iShares Semiconductor ETF (NYSE: SOXX) tumbled 1.3%