Surprising Increase in US Consumer Spending Despite Delta Variant... Will Fed Decide on Tapering?

Investment Banks Downgrade 3Q US Economic Growth Forecast

[Asia Economy New York=Correspondent Baek Jong-min] U.S. retail sales recorded a surprising increase. Although weekly initial jobless claims turned upward, the rise in consumption, which was expected to decline, is shaking the market ahead of the Federal Reserve's (Fed) decision next week on whether to taper asset purchases.

[Image source=AP Yonhap News]

On the 16th (local time), the Department of Commerce reported that August retail sales increased by 0.7% compared to the previous month. This was a surprising increase, contrary to the market forecast of a 0.8% decrease compiled by Dow Jones.

August retail sales rose by as much as 15.1% compared to the same period last year.

Core retail sales, excluding automobiles, gasoline, and food, increased by 1.8%, the largest increase in the past five months. When excluding automobiles, whose sales declined due to supply shortages, the core retail sales growth rate exceeded the overall retail sales growth rate.

The increase in retail sales was attributed to most households purchasing clothing, school supplies, and other items in preparation for the new school term starting in September. However, it remains uncertain whether retail sales will continue to perform well in September after the back-to-school effect fades.

Unlike consumption, employment showed a decline. The Department of Labor announced that initial jobless claims for the week of September 5?11 were 332,000.

This was an increase of 20,000 from the previous week and 10,000 more than the market expectation of 322,000.

This week's initial jobless claims were the first counted since the federal government's additional unemployment benefits ended on September 6.

Concerns continue that the U.S. economic growth is slowing amid the spread of the Delta variant.

Earlier, the Fed stated in the Beige Book that the economy slowed in August, and a day before, JPMorgan Chase lowered its third-quarter U.S. GDP growth forecast from 7% to 5%, citing decreased demand and production shortages in the automobile industry. Goldman Sachs had previously lowered its third-quarter GDP growth forecast from 5.25% to 3.5%.

There are also forecasts that the spread of the Delta variant has peaked and the economy will continue to recover. The Wall Street Journal reported that many economists believe retail sales could recover quickly as vaccination expands and supply chain shortages ease.

Despite strong consumption, which accounts for two-thirds of the U.S. economy, major indices on the New York Stock Exchange opened lower.

The August Consumer Price Index (CPI), released earlier, fell short of expectations, and retail sales are seen as an indicator that could influence Fed officials' discussions on whether to taper asset purchases at the upcoming FOMC regular meeting next week.

As of 10:15 a.m., the Dow Jones Industrial Average was down 0.5%, the S&P 500 was down 0.65%, and the Nasdaq was down 0.71%.

The U.S. 10-year Treasury yield surged by 0.03 percentage points to 1.334%. Along with the rise in Treasury yields, the U.S. dollar index also showed strength, rising by 0.4%.