Stronger-than-expected U.S. retail sales data for August 2024 provided a slight boost to sentiment. While concerns remain about a possible slowdown in consumer spending, retail sales have shown resilience, reflecting steady economic activity.

Preliminary estimates of U.S. retail and food service sales in August reached $710.8 billion, up 0.1% from July 2024, according to the U.S. Census Bureau. The modest increase exceeded expectations, as economists had forecast a 0.2% drop in spending. Sales rose 2.1% year-over-year compared to August 2023. Total sales for the June-August period rose 2.3% from the same period last year, showing steady consumer demand.

July retail sales were also revised upward, from a previously reported 1.0% increase to 1.1%, providing additional momentum to the retail sector.

Excluding auto and gas sales, retail sales rose 0.2% in August, though slightly below market expectations of a 0.3% increase. The control group (which excludes more volatile categories and is included in GDP calculations) grew 0.3%, in line with market expectations. The data suggest that the core components of retail spending remain healthy, contributing positively to overall economic growth.

Among the major segments, non-physical retailers, including e-commerce platforms, showed the strongest year-over-year growth, reaching 7.8%. Meanwhile, sales at food service and beverage venues increased 2.7% from August 2023, indicating continued stability in consumer spending in the service industry.

Retail trade sales excluding food services increased 0.1% from July and 2.0% year-over-year, showing stable demand in the broader retail market.

The stronger-than-expected retail sales report comes at a critical time as the Federal Reserve begins its two-day policy meeting. The market expects a 67% probability of a 50 basis point rate cut, an expectation that stems from signs of slowing labor market activity and easing inflationary pressures. This would be the first rate cut since 2020, and traders expect the Fed to announce the decision on the 18th.

Stronger-than-expected retail sales data could affect the Fed's decision-making, and strong consumer spending typically mitigates the need for aggressive monetary easing. However, with inflation approaching the Fed's 2% target, the rate cut appears to be aimed at stimulating economic activity.

The outlook remains cautiously optimistic given the slight increase in retail sales and continued strength in key areas such as non-brick and mortar retail. Although consumer spending has not surged, it has remained stable, supporting short-term optimism. However, traders should keep a close eye on the upcoming decision of the Federal Reserve, as a larger-than-expected rate cut could further boost market sentiment.