Strong August retail sales released on Thursday erased fears of stagflation on Wall Street, as American consumers shook off Delta variant concerns.
According to the U.S. Census Bureau, sales at the nation’s retailers and restaurants rose at a monthly rate of 0.7% in August of 2021, beating market expectations of a 0.8% decline.
Moreover, excluding volatile auto sales, retail sales rose by 1.8%, well ahead of the 0.1% markets have expected. These numbers confirmed a significant turnaround from July when retail sales dropped 1.8%, easing concerns of the U.S. economy heading into stagflation. That’s a situation of higher inflation combined with lower economic growth.
Most of the sales gains were in nonstore retailers (5.3%), followed by furniture (3.7%), general merchandise stores (3.5%), food and beverages stores (1.8%), and building materials (0.9%).
However, the impact of these gains on overall sales was moderated by losses elsewhere like motor vehicle and parts, and sporting goods, sectors most affected by supply chain bottlenecks.
August retail sales were helped by generous unemployment benefits and pent-up savings during the pandemic, which put more money into the hands of American households.
The trouble is that pandemic unemployment benefits are ending in September, while pandemic savings will eventually be depleted, raising doubts about whether retail sales will continue to grow at the same pace in the months to come.
Thus, the tapering of trader and investor enthusiasm in buying equities. Major averages headed south after trading opened on Thursday, with declines accelerating in late-morning trade. At 11.30 a.m., the Dow Jones was down 0.6%, the S&P 500 0.7%, and the tech-heavy Nasdaq 0.65%.
Elsewhere in the economy, a labor market report showed that the number of Americans filing new unemployment claims rose to 332,000 in the week ending September 11, from a pandemic low of 312,000 in the previous week.
The weakening of the labor market further tapered Wall Street’s enthusiasm for the vital August retail sales, adding to selling pressure. It further eased pressure on U.S. Treasury bonds, which sold moderately in morning trade. At 11:30 a.m., the benchmark 10-year Treasury bond was trading with a yield of 1.33%, up 2.07% from Wednesday’s closings (higher bond yields mean lower bond prices).
Still, investors shouldn’t make too much of the connection between Thursday’s economic news, and action on Wall Street. The decline in major equity indexes might well be profit-taking, following solid gains in yesterday’s trading session.
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