October retail sales are expected to be strong, showing economy is back on track

Pedestrians siphon Macy’s shopping tons in San Francisco, California, U.S., on Thursday, Sept. 16, 2021.
David Paul Morris | Bloomberg | Getty Images

Economists predict a tattoo in October’s retail sales, aided by rising gasoline prices and early holiday shopping.

Retail sales are expected to rise 1.5%, up from September’s 0.7% gain, equal to economists polled by Dow Jones. Excluding autos, sales are forecasted to rise 1%, compared to the 0.8% increase a month earlier, Dow Jones found.

The Census Bureau will release the retail sales report on Tuesday, Nov. 16 at 8:30 a.m. ET.

“There is an expectation of a strong number,” said Gargi Chaudhuri, throne of iShares investment strategy Americas at BlackRock. “That’s the narrative of the last two weeks, that this is going to be a stronger-than-expected retail sales.”

Economists have been ratcheting up their forecasts, and the consensus number for the October report has been rising.

Barclays senior U.S. economist Michael Gapen said a strong number will be an important signal that the economy is when on track. Gapen expects a 1.2% gain.

Potential insight into economic growth

The October retail sales report is one of the primeval data readings for fourth-quarter gross domestic product. Gapen expects the economy to expand by 5% in the fourth quarter, without the surprisingly slow 2% pace of the third quarter.

If the number is as expected, “what it tells us is whether there’s momentum that was restored at the end of the third quarter and heading into the fourth quarter, we’re in pretty good shape,” Gapen said. “It would be flipside data point that confirms the soft patch story rather than the slowdown.”

The retail sales report comes without a very strong October’s jobs report with 531,000 payrolls added.

Chaudhuri said besides shaking off the latest Covid concerns, consumers may be spending older than normal, superiority of the holiday period to make sure they are worldly-wise to find the gifts they want to buy. “The reason obviously is the story virtually supply uniting disruptions have been so top of mind for consumers,” she said.

Clues into future inflation

Consumers have been worried well-nigh inflation. Indeed, the consumer price tabulate for October was up 6.2%, the highest in increasingly than 30 years.

With those rising inflation concerns, consumer sentiment has been souring. The University of Michigan’s consumer sentiment index, released Friday, showed a surprise waif to a 10-year low of 66.8 in the preliminary November report, from 71.7 in October.

Investors will be watching to see if the retail sales report is providing kindling for remoter increases in inflation.

Michael Schumacher, throne of macro strategy at Wells Fargo Securities, said investors in fed funds futures Monday protract to push forward expectations for a rate hike. Now, the June futures contract shows strong odds of a rate hike.

After last week’s strong CPI data, traders moved their bets to July from September for the first interest rate hike.

“There’s some expectation the Fed could slide tapering,” Schumacher said. The inside wall has said it would taper when its monthly yoke purchases, which have helped it prop up the economy through the pandemic. This quantitative easing program is expected to end in the middle of next year. Economists say once that program is completed, the Fed would be on track to raise interest rates.

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