U.S. retail sales rose more than expected by 0.1% month-over-month in August, signaling a resilient consumer spending momentum in the middle of the third quarter.

Retail sales slowed significantly from July’s upwardly revised growth; however, as they increased more than anticipated, this could boost the chances of a smaller interest rate cut when the Federal Open Market Committee (FOMC) convenes for its two-day meeting.

Before the retail sales data was released, market-implied probabilities pointed to a 67% chance of a 50-basis-point rate cut, compared to a 33% likelihood of a smaller 25-basis-point cut, according to the CME FedWatch Tool.

August Retail Sales Report: Key Highlights

Retail sales rose by 0.1% on a monthly basis in August, beating the expected 0.2% decline as per TradingEconomics’ consensus.

July’s retail sales growth was upwardly revised from 1% to 1.1%.

On a year-over-year basis, retail sales eased from the upwardly revised 2.9% in July to 2.1% in August.

Excluding motor vehicles and parts, sales grew by 0.1% month-over-month, below the 0.4% growth in July and missing the expected 0.2% increase.

When excluding gasoline, motor vehicles, and parts, sales rose by 0.2% month-over-month in August, a slowdown from the 0.4% gain in July, and below the expected 0.3%

Among spending categories, the largest monthly gains were recorded in miscellaneous store retailers, up 1.7%, and nonstore retailers, up 1.4%.

Conversely, gasoline station, electronics and appliance stores experienced the steepest monthly decline, with sales dropping by 1.2% and 1.1% respectively.

Market Reactions: Dollar Strengthens, Treasury Yields Rise

The U.S. Dollar Index (DXY) – as tracked by the Invesco DB USD Index Bullish Fund ETF – strengthened following the retail sales report, driven by rising Treasury yields.

Yields on the policy-sensitive 2-year Treasury note surged by about 5 basis points to 3.59%, indicating dwelling odds for a larger Fed rate cut.

Stocks inched higher during Tuesday’s premarket trading, with futures on the S&P 500 up 0.4% at 08:50 a.m. in New York. Nasdaq 100 futures were 0.6% higher.

On Monday, tech stocks closed in the red, with the Invesco QQQ Trust, Series 1 ( QQQ ) falling 0.4%, dragged down by chipmakers as the iShares Semiconductor ETF ( SOXX ) tumbled 1.3%

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Image created using artificial intelligence via Midjourney.