Amid increased household spending, U.S. retail sales rose more than expected in September, maintaining expectations that economic growth rapidly accelerated in the third quarter.
Despite predictions in late 2022 of a possible recession this year, the economy’s ongoing strength has been underscored by other data released this week, which showed production at factories rising in September.
Goldman Sachs raised its gross domestic product (GDP) growth estimate for the third quarter by three-tenths of a percentage point to a 4.0 percent annualized rate, the fastest since the end of 2021.
Amid stronger-than-expected employment growth and consumer price data in September, the data raised concerns that the Federal Reserve could again increase interest rates in December or January.
Christopher Rupkey, chief economist at FWDBONDS, said, “The economy looks like it is getting used to the new normal of interest rates being higher for longer because shoppers are not taking a break. Fed officials have another rate hike this year up on their forecast board, and they will need to use it if the economic data continues to surprise economists on the upside.”
Despite the resilience, consumers relying on debt to fund purchases face potential headwinds such as higher borrowing costs. The Fed’s efforts to curb inflation have pushed credit card delinquencies to an 11-year high.
In addition, in October, millions of Americans resumed payments on student loans, which economists estimated was equal to some US$70 billion, or around 0.3 percent of disposable personal income.
However, a tight labor market, with the economy creating 336,000 jobs in September, is continuing to drive consumer spending, while excess savings that accumulated during the COVID-19 pandemic remain higher than previously estimated and are mostly expected to last at least through the first quarter of 2024.
Jay Hawkins, a senior economist at BMO Capital Markets in Toronto, said, “For now, though, it would be premature to underestimate the U.S. consumers’ willingness to spend.”