Retail sales increased more than expected in September as the U.S. economy continued to show signs of growth in the third quarter.
The Commerce Department's Census Bureau said that retail sales rose 0.4% last month after an unrevised gain of 0.1% in August. Economists polled by LSEG had forecast that retail sales would rise 0.3%. Estimates ranged from no change to an increase of 0.8%.
Retail sales excluding automobiles, gasoline, building materials and food services rose 0.5% in September after an unrevised rise of 0.3% in August. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product (GDP). Growth estimates for the third quarter are around a 3.2% annualized rate. The economy grew at a 3% pace in the second quarter.
Signs of the economy's continued resilience are likely to reinforce the probability of the Federal Reserve opting for a smaller 25-basis-point cut to the benchmark federal funds rate when it meets early next month.
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"Strong consumer spending in September suggests economic growth in the previous quarter was solidly above trend," said Jeffrey Roach, chief economist for LPL Financial. "Looking ahead, investors need to monitor any signs that the unemployed are finding it more difficult to earn a paycheck. Our baseline remains that the Fed will likely cut a quarter of a percent in both November and December."
The Fed began its rate cutting cycle last month with a larger than normal 50-basis-point cut, lowering the benchmark from a range of 5.25% to 5.5% to a new range of 4.75% to 5%.
Policymakers raised the benchmark rate from near zero to the highest level in 23 years over the course of 2022 and 2023 to combat surging inflation, which reached a 40-year high of 9.1% in June 2022.
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Last month's rate cut came amid growing concerns about the labor market, though the September jobs report released earlier this month came in hotter than expected, with 254,000 jobs added, according to the Labor Department's initial read of payroll figures.
The Fed's policymaking arm, the Federal Open Market Committee (FOMC), will hold its next meeting on Nov. 6-7, right after Election Day.
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Reuters contributed to this report.