"Terrifying data" exceeds expectations, Federal Reserve interest rate cut expectations "cool down"!

Due to the sustained consumer spending willingness in the United States, retail sales steadily increased in October, indicating that the U.S. economy still has ample momentum before the holiday shopping season.

On Thursday, U.S. October retail sales month-on-month recorded 0.4%, higher than the expected 0.3%, with the previous value revised from 0.4 to 0.8%. Excluding automotive data, retail sales only grew by 0.1%.

Among the 13 categories in the report, 8 categories showed growth, with electronics and appliance stores experiencing the largest increase. Auto sales recorded the strongest growth in three months. The growth rate of e-commerce was relatively moderate, possibly due to discounts during Amazon's (Amazon.com Inc.) Prime Day, as well as similar promotional activities by Walmart (Walmart Inc.) and Target (Target Corp.).

The upward revision indicates that consumers are entering the last few months of the year with strong momentum, which may signal a robust holiday shopping season. However, inflation remains stubborn, and some retailers are already considering raising prices as they anticipate that President Donald Trump will impose higher tariffs on imported goods.

After the data was released, spot gold initially fell before rising, with a short-term fluctuation of $6; the U.S. dollar index saw its short-term gains expand to over 30 points; non-U.S. currencies generally fell, with the British pound dropping over 40 points against the U.S. dollar in the short term, the euro dropping over 30 points against the U.S. dollar in the short term, and the U.S. dollar rising over 50 points against the Japanese yen in the short term.

The better-than-expected retail sales data led traders to cut bets on a Federal Reserve rate cut in 2025.

Retail sales account for about one-third of all consumer spending and provide clues about economic strength.

Since this spring, U.S. economic growth has exceeded expectations, largely due to strong consumer spending, which is the backbone of the U.S. economy.

Some of the spending is a result of rising inflation, but Americans have stable jobs and relatively low debt, allowing them to increase spending.

However, the surprising economic resilience may force the Federal Reserve to slow down the pace of rate cuts, which is frustrating for homebuyers and car buyers who are waiting for prices to become more affordable.

Scott Helfstein, head of investment strategy at Global X, believes that this data may be more relevant for the Federal Reserve and investors than the CPI released on Wednesday: "In the context of a slightly weakened labor market, consumer health is a key issue for the upcoming earnings season and potential tariff increases."

However, some economists are concerned that the slowdown in October sales was greater than expected. Bank of America economist Aditya Bhave stated that retail sales may have actually declined due to reduced discretionary spending in states affected by Hurricane "Milton" and adverse seasonal adjustments. **

The low unemployment rate has largely supported consumption, and the strong household balance sheets brought about by the stock market rebound and high housing prices have also played an additional role. Household savings remain high. There are concerns that U.S. economic growth is primarily driven by middle-to-high-income households that are more flexible and substitutable in their consumption.

However, Bank of America’s credit card data shows that spending across all income groups is elastic. Bank of America Securities U.S. analyst Aditya Bhave stated, “We do not see any signs of increased reliance on credit cards among any income group.” “However, we have noticed that high-income households seem to perform better in certain service sectors such as airlines, accommodations, entertainment, and cruises.”

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