Two new economic data released Thursday eased fears of a recession as investors continued to debate how quickly the Federal Reserve should cut interest rates.
Retail sales rose 1% in July, new data shows Census Bureau dataabove Wall Street expectations for a 0.4% increase. At the same time, initial jobless claims fell more than expected last week.
New data from the Ministry of Labor The data showed 227,000 initial jobless claims were filed in the week ending August 10, down from 234,000 the previous week and below the 235,000 economists had expected.
The two reports counter fears of a significant slowdown in the U.S. economy, after a weaker-than-expected jobs report in July led to the worst stock market decline of the year. Stocks advanced Thursday, with the three major midcaps up about 1%, while the S&P 500 (^GSPC) headed for its best weekly return in nine months.
“All of a sudden, things just clicked into place,” Yung-Yu Ma, chief investment officer of BMO Wealth Management in the U.S., told Yahoo Finance. “And what almost looks like a best-case scenario for the data is a dramatic change from what we saw about a week ago, when the market suffered losses.”
He added: “We believe the soft landing is well in place.”
Economists had few qualms about the details of Thursday’s retail sales report. July sales, excluding autos and gasoline, rose 0.4%, above consensus estimates of a 0.2% gain. The control group for Tuesday’s release, which excludes several volatile categories and takes into account gross domestic product for the quarter, rose 0.3% in July, above estimates of a 0.1% gain.
Motor vehicle and parts dealers led category gains, up 3.6%, while sales at electronics and appliance stores jumped 1.6%.
“There was little in the July retail sales report for the perennial bears to build on, with the rebound in retail sales led by a pick-up in vehicle sales, but it is encouraging to see that it is broad-based, with sales in the control group rising even further,” the Capital Economics team wrote in a note.
The positive spending report, combined with data showing lower-than-expected jobless claims, prompted investors to reduce their calls for the Fed to start easing policy aggressively.
Learn more: Fed forecast for 2024: What experts say about the possibility of a rate cut
As of Thursday morning, markets were pricing in about a 75% chance that the Federal Reserve will cut interest rates by 25 basis points. A week ago, the market was pricing in a 50 basis point cut from the Fed, amid concerns about an impending economic slowdown.
“The Fed should soon begin normalizing policy with modest, gradual cuts, but there is no indication that the economy needs significant easing,” Jefferies U.S. economist Tom Simons wrote in a note to clients Thursday.
Josh Schafer is a reporter for Yahoo…
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