As investors continue to debate how quickly the Federal Reserve should cut interest rates, two new pieces of economic data released Thursday eased recession fears.
The latest Census Bureau data showed retail sales rose 1% in July, beating Wall Street’s forecast of a 0.4% increase, while new claims for jobless benefits fell more than expected last week.
The latest data from the Labor Department showed 227,000 initial claims for unemployment insurance were filed in the week ending August 10, down from 234,000 the previous week and below economists’ expectations of 235,000.
The two reports counter concerns that a major slowdown in the U.S. economy is on the way, after a weaker-than-expected July jobs report sparked the worst stock market sell-off this year. Stocks rose on Thursday, with all three major indexes up about 1%, and the S&P 500 (^GSPC) on track for its best weekly return in nine months.
“All of a sudden, everything is going well,” Yun Yu Ma, U.S. chief investment officer at BMO Wealth Management, told Yahoo Finance. “It seems like almost an ideal scenario in terms of the data, which is a big change from where we were a week or so ago when the markets were crashing.”
“I believe we have certainly achieved a soft landing,” he added.
Economists had little trepidation about the details of Thursday’s retail sales report. Sales excluding autos and gasoline rose 0.4% in July, beating consensus expectations for a 0.2% increase. A control group released on Tuesday that strips out several categories and components of quarterly gross domestic product figures that are more volatile, rose 0.3% in July, beating expectations for a 0.1% increase.
By industry, automobile and parts dealers led the growth with an increase of 3.6%, while sales at electrical and appliance stores also increased by 1.6%.
“The July retail sales report offered little for bears to focus on. The recovery in retail sales was led by a recovery in auto sales, but there was broad-based encouragement, including further gains in control group sales,” the Capital Economics team wrote in a note.
The strong spending report, combined with data showing lower-than-expected jobless claims, led investors to scale back their views that the Fed will begin easing policy aggressively.
Read more: Fed forecast for 2024: Experts discuss chances of rate cut
As of Thursday morning, markets were pricing in about a 75% chance that the Fed would cut interest rates by 25 basis points. A week ago, markets had backed a 50-basis-point cut by the Fed due to concerns about an imminent economic recession.
The story continues
“The Fed should begin normalizing policy soon with modest and gradual rate cuts, but there are no signs that the economy needs any significant easing,” Tom Simons, U.S. economist at Jefferies, wrote in a client note on Thursday.
People shop at a Walmart Superstore in Secaucus, New Jersey, on July 11, 2024. (Photo by Associated Press/Eduardo Munoz Alvarez) (Associated Press)
Josh Shaffer is a reporter for Yahoo Finance. Follow him on X Follow.
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