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Strong Consumer Demand May Delay Fed Rate Cuts, March Data Suggests

Published 2024-04-15, 10:38 a/m
© Reuters.  Strong Consumer Demand May Delay Fed Rate Cuts, March Data Suggests

Quiver Quantitative - March's retail sales data from the U.S. Commerce Department revealed a stronger-than-expected rise in consumer spending, indicating that the American economy continues to be propelled by robust consumer demand. The 0.7% increase in retail purchases from February aligns with the highest forecasts, emphasizing the resilience of the U.S. economy despite ongoing inflationary pressures and interest rate concerns. This surge was led by significant jumps in categories such as e-commerce, even as auto sales dipped, and gasoline receipts rose due to increasing fuel prices.

The report highlighted an impressive 1.1% rise in so-called control-group sales, the most significant increase since early last year. This group, which is crucial for calculating GDP and excludes food services, auto dealers, building materials stores, and gasoline stations, suggests a positive outlook for the U.S. GDP in the first quarter. The strong performance of this metric, coupled with a revised increase in February's data, signals a potentially robust economic growth rate for the early part of the year.

Market Overview: -US retail sales defy expectations, rising in March and revising February figures upwards. -This indicates continued consumer spending strength, fueling economic growth.

Key Points: -Retail sales rose 0.7% in March, exceeding analyst predictions. -Control-group sales, a key GDP metric, surged 1.1%, the highest since early 2023. -The robust consumer spending suggests a potential delay in Fed interest rate cuts.

Looking Ahead: -The strong retail data raises concerns about persistent inflation and potential delays in Fed rate cuts. -The upcoming inflation-adjusted spending report will offer a more comprehensive view of consumer outlays. -Despite strong spending, credit card delinquency data hints at potential consumer strain.

Consumer spending's continued strength into the second quarter poses potential challenges for the Federal Reserve, particularly concerning inflation. With a resilient job market bolstering household demand, there is an increased likelihood that inflation may become more entrenched, potentially delaying anticipated rate cuts. According to Andrew Hunter, deputy chief U.S. economist at Capital Economics, the ongoing resilience in consumption could push the Fed to postpone interest rate cuts until later in the year, possibly not before September.

Despite concerns about household financial stress, evidenced by record-high credit card delinquency rates reported by the Philadelphia Fed for the fourth quarter, consumer spending remains vigorous. Stock futures-maintained gains while Treasury yields ticked up following the release of the retail data, reflecting traders' expectations that the Fed's rate cuts might occur well into the second half of the year. This robust consumer activity, however, comes amid signs that the broader slowdown in consumption expected for this year might be delayed, suggesting continued economic resilience but also complicating the Fed's inflation management strategy.

This article was originally published on Quiver Quantitative

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