Resilient Consumer Spending and the Uncertain Path of Interest Rate Cuts in the US

Understanding the Better-Than-Expected US Consumer Data in September:

The consumer data for September exceeded expectations, with retail sales growing by +0.4% month-on-month, and core retail sales also increasing more than anticipated. This indicates the resilience of the US economy, suggesting that the likelihood of a recession is relatively low. Retail and service industries were the main drivers of this growth.

On the other hand, the reasons behind this strength include a relatively stable US job market after interest rate cuts, and strong wage growth. With inflation easing, residents' real income and purchasing power have been boosted. Additionally, the upcoming US elections, with intense campaign rallies by Harris and Trump, have contributed to a resurgence in travel and dining, which is also reflected in the increase of new jobs in the leisure and hospitality sectors according to the September non-farm data.

From the perspective of interest rate cuts, the stabilization of consumption points to ongoing uncertainty about the long-term path of rate reductions. In the short term, as inflation has significantly dropped from previous levels, the Federal Reserve's focus has shifted towards the labor market. Further rate cuts are possible to protect the labor market, especially in the face of recent hurricanes, making a 25BP rate cut in November highly likely. However, in the medium term, the deinflation process in the US is still fluctuating, and consumption, a leading indicator in the economic cycle, has already stabilized.

This shows that the US economy is highly resilient, and the path of interest rate cuts in 2025 remains uncertain, depending on the presidential election (which will determine policies such as tariffs and immigration), congressional elections (which will decide on the debt ceiling and the possibility of a new round of fiscal stimulus at the beginning of 2025), and the trend of the real estate market recovering during a period of declining interest rates.