Wall Street is closely monitoring upcoming retail sales data as a potential indicator of a “no landing” scenario for the U.S. economy. Bank of America analysts are projecting September retail sales to increase by 0.8%, significantly higher than the consensus estimate of 0.2% growth according to economists surveyed by Bloomberg.
This anticipated surge in consumer spending could further support the notion of a “no landing” economic outcome, where continued robust growth fuels inflation and delays interest rate cuts by the Federal Reserve. While indicative of a strong economy, this scenario may disappoint those hoping for relief from elevated borrowing costs.
Bank of America analysts emphasize that although monthly retail figures can be volatile, a substantial increase in September would be noteworthy. They suggest that such a strong report, following recent upward revisions to GDP and GDI data, as well as the impressive September jobs report, would reinforce the trend of positive economic surprises.
The analysts note that just a month ago, discussions centered on whether the economy was headed for a recession or a soft landing. However, if retail sales show considerable acceleration, the narrative may shift further towards a “no landing” or even economic
re-acceleration.
This outlook comes in the wake of last week’s unexpectedly robust September jobs report, which added 254,000 positions, far exceeding analyst predictions. This data point alone sparked discussions about the possibility of a “no landing” scenario.
Recent economic indicators have been consistently strong, with upward revisions to second-quarter GDP growth and solid income growth. Additionally, the latest consumer price index came in slightly above expectations on Thursday.
While Bank of America analysts acknowledge that September’s retail data alone may not be sufficient to halt the Fed’s easing cycle, they suggest that persistent economic strength could eventually lead to a pause. They anticipate the Fed will likely implement two to four more rate cuts, even if labor market conditions and economic activity remain robust.
However, the analysts caution that if economic momentum continues to surge as interest rates approach 4%, the Federal Reserve may need to seriously reconsider whether monetary policy is sufficiently restrictive.
Bank of America’s aggregated credit and debit card spending data from September revealed particularly significant increases in department stores, general merchandise stores, and clothing retailers. The analysts also note that Hurricane Helene, which made landfall in the southeastern United States last month, may have temporarily boosted spending as residents stocked up on groceries in preparation for the storm.
The potential implications of a “no landing” scenario are significant for American consumers. If the Federal Reserve is compelled to maintain higher interest rates due to persistent inflation concerns, individuals and businesses will continue to face elevated prices and increased borrowing costs.
This situation underscores the delicate balance the Fed must strike between supporting economic growth and controlling inflation. While a strong economy is generally viewed positively, the associated inflationary pressures and high interest rates can create challenges for various sectors of the population, particularly those seeking affordable credit or hoping for reduced living costs.
As the October 17 release of September retail sales data approaches, market participants and policymakers will be keenly observing the figures for further insights into the trajectory of the U.S. economy and its potential impact on monetary policy decisions in the coming months.