Strong US retail sales ease gloom over the economy By Reuters

By Lucia Mutikani

WASHINGTON (Reuters) – US retailing increased in July when consumers bought a number of items even though they cut down on purchases of motor vehicles, which helped to provoke the fears of the financial market that the economy was heading into a recession.

However, the positive report from the Department of Commerce on Thursday is unlikely to change expectations that the Federal Reserve will cut interest rates again next month as industry news remains tough, underscoring the outlook for the economy against trade tensions and slowing growth abroad.

President Donald Trump cheered on the strong retail data, which came a day after a key part of the US Treasury's yield curve inverted for the first time since June 2007, triggering a stock market sale. An inverted yield curve is historically a reliable predictor of looming economic downturns.

Trump's "America First" policy, which has led the United States into a bitter trade war with China, has been blamed for threatening to derail the longest American economic expansion in history and unleash a global recession.

States are by far the largest, strongest and most powerful economy in the world, they are not even close! "Trump wrote on Twitter." Like others falter, we just want to get stronger. Consumers are in the best shape ever, lots of money. "

The financial markets have fully priced in a 25-point interest rate cut at the US Federal Reserve on September 1[ads1]7. 18 policy meeting. The Fed lowered its short-term interest rate by a quarter percentage point last month, by reference to the fierce US and Chinese trade struggle and slowing global economies.

But the data could push markets to call back expectations of 50-basis-point interest rate cuts next month.

"So yes, consumers are boosting economic growth and easing pressure on the Federal Reserve to cut more aggressively, but the actual war, and the rhetoric that comes, will push for more interest rates, "said Jennifer Lee, senior economist at BMO Capital Markets in Toronto.

Retail sales rose 0.7% last month after rising 0.3% in June, the government said, Economists polled by Reuters had predicted retail sales would rise 0.3% in July. retail sales by 3.4%.

Excluding cars, gasoline, building materials and food services, retail sales jumped 1.0% last month after a 0.7% increase in June. These so-called core sales are most consistent with consumer spending on gross domestic product.

Solid retail sales were boosted by strong second quarter results from Walmart Inc (N :). The world's largest retailer had a 20-quarter, or five-year, stretch of US growth, unparalleled by any other retail chain, and lifted its earnings forecasts for the year.

U.S. The shares traded largely higher after Wednesday's heavy losses. The dollar () settled against a basket of currencies. US Treasury prices rose, with the yield curve steeped slightly after Wednesday's inversion.

STRONGLY LABOR MARKET

Christmas's gain in core sales suggested strong consumer spending early in the third quarter, although the pace is likely to slow from the April-June quarter's robust 4.3% annual interest rate. Consumer spending, which accounts for more than two-thirds of the economy, is supported by the lowest unemployment rate in nearly half a century.

While a separate report from the Labor Department on Thursday showed an increase in the number of Americans submitting unemployment benefits last week, the trend in claims continued to point to a strong job market.

Solid consumer spending is wasting some of the economic framework from the downturn in the industry, which is underscored by weak business investment. However, there are red flags for the labor market from industry.

The sector's struggles were highlighted by a third Fed report on Thursday that showed factory output falling 0.4% in July. Factory production has fallen more than 1.5% since December 2018. Production, which accounts for about 12% of the economy, is also being weighed down by a warehouse overhang, especially in the automotive industry.

The problems appear to have continued into the third quarter. Although a report from the Philadelphia Fed on Thursday showed that plant activity in the Mid-Atlantic region declined moderately in August amid a rise in new orders, manufacturers reported hiring fewer workers and wasting hours.

A measure of factory employment fell to the lowest level since November 2016. The weakness of factory employment in the region covering eastern Pennsylvania, southern New Jersey, and Delaware was mirrored by another New York Fed study. New York state activity did not change much this month, with employment measures deteriorating further.

"The health of factories is still an important driver of growth, and soft production is still a factor in keeping economic growth in the slow track," said Chris Rupkey, chief economist at MUFG in New York.

Production productivity fell at its fastest pace in almost two years in the second quarter, with factories cutting hours for workers, another Labor Department report shows. [19659004] The economy grew at an interest rate of 2.1% in the second quarter and declined from the rate in the first quarter of 3.1%. Growth estimates for the third quarter range from 1.5% to 2.1%.

In July, car sales fell 0.6% after rising 0.3% in June. The receipts at the gas stations dropped 1.8%, reflecting higher gasoline prices. Retail sales on the Internet and mail order rose 2.8%, mostly in six months, after rising 1.9% in June. They were probably boosted by the Amazon.com Inc (O 🙂 Prime Day event.

There was an increase in sales in clothing, furniture and hardware stores. Sales of restaurants and bars accelerated 1.1%. But spending on hobby, musical instrument and bookstores fell 1.1% last month.

"The consumer is incredibly resilient," says Lindsey Piegza, chief economist at Stifel in Chicago. "But without growth from housing investment and industry, the consumer will be hard-pressed to continue to support the US economy alone."