The latest economic data releases have provided a breath of relief to investors who have been concerned about a potential recession. Retail sales in July increased by 1%, surpassing Wall Street’s expectations of 0.4%. Additionally, initial filings for unemployment insurance fell more than anticipated the previous week.
The Department of Labor reported that there were 227,000 initial jobless claims filed in the week ending Aug. 10, down from the prior week and below economists’ expectations. These positive reports counter fears of a significant slowdown in the US economy following a weaker-than-expected July jobs report that led to the worst stock market sell-off of the year.
Stocks rallied on Thursday, with all three major averages rising about 1%. The S&P 500 is on track for its best weekly return in nine months. Yung-Yu Ma, BMO Wealth Management US chief investment officer, commented on the positive shift in data, stating, “We think the soft landing is firmly in place.”
Within the details of the retail sales report, economists found little to be concerned about. July sales excluding auto and gas rose by 0.4%, higher than the consensus estimates. The control group, which excludes volatile categories and factors into the gross domestic product reading, increased by 0.3% in July, surpassing estimates.
Motor vehicle and parts dealers saw a 3.6% increase in sales, while electronic and appliance store sales rose by 1.6%. The team at Capital Economics noted that there was nothing substantial in the July retail sales report for pessimists to focus on, with the rebound in retail sales being broad-based.
The positive report on spending, combined with lower-than-expected unemployment claims, led investors to adjust their expectations for the Federal Reserve’s interest rate cuts. Market participants are now pricing in roughly a 75% chance of a 25-basis point rate cut by the Fed. This is a shift from the previous week when a 50-basis point cut was favored.
Jefferies US economist Tom Simons suggested that the Fed should ease policy gradually, as there are no signs of the economy needing significant accommodation. The latest economic data releases provide a more optimistic outlook for the US economy, easing concerns of a looming recession. Stay tuned to Extreme Investor Network for more in-depth analysis and updates on the latest financial and business news.