Expectations for interest rate cuts receive another boost! US retail growth slows in September, market focus shifts to Thanksgiving and Black Friday shopping season.

The unexpectedly slowing expansion of retail sales in the United States, dubbed as "terrifying data," highlights a slowdown in consumer spending pace amidst a softening labor market and temporary inflation pressure from tariffs. While the growth rate of consumer spending has slowed down, the resilient positive growth of retail sales further reinforces the recent prevailing market narrative of a "Goldilocks-style soft landing" in the moderate growth macroeconomic environment. According to economists at Morgan Stanley, the passing of the OBBBA tax cut law by the Trump administration in 2025 (referred to as the "big and beautiful" law) is expected to strongly boost economic growth from 2026 onwards. This effect, combined with the temporary inflation disruption caused by Trump's tariff policies until short-term inflation gradually dissipates, as well as the rapid progress in the construction of AI data centers by tech giants like Microsoft and Google focused on AI computing infrastructure, will jointly stimulate the U.S. economy to present a Goldilocks-style soft landing in 2026, characterized by moderate growth. The term "Goldilocks" refers to a U.S. macroeconomic environment that is neither too hot nor too cold, maintaining moderate growth in GDP, consumer spending, non-farm labor market, and long-term stable mild inflation trends, while benchmark interest rates are on a downward trajectory. Overall, Morgan Stanley predicts that the U.S. economy will gradually overcome the high level of uncertainty by 2026 and return to a positive trajectory of moderate growth. Furthermore, after the release of September retail data did not cause much of a stir, the market continues to focus on the "Google AI chain investment boom" brought about by the emergence of Google Gemini3, as well as the expected moderate economic growth driven by the soft landing scenario. Meanwhile, expectations of a Fed rate cut have increased following the retail data release, as the "CME FedWatch Tool" shows an 80% probability of a rate cut in December. Investors are now turning their attention to the upcoming shopping frenzy weekend of American "Thanksgiving + Black Friday". September retail sales in the U.S. surprisingly lacked strength in growth Overall, U.S. retail sales saw a slight increase in September, indicating that after several months of strong consumer spending, some lower to middle-income consumers paused under the pressure of inflation and increasing job difficulties. Data released by the U.S. Department of Commerce on Tuesday showed that, following a strong August increase of 0.6% in unadjusted retail purchases, retail sales only grew by 0.2% in September, falling short of the market's general expectation of a 0.4% growth rate. Excluding auto and gasoline sales, the increase in sales was only 0.1%. Of the thirteen categories, eight recorded increases, mainly driven by spending at gas stations, personal care stores, and various other retail outlets. Vehicle sales saw a decline for the first time in four months. Expenses in electronics, clothing, and sporting goods also decreased. Consumer spending lost some momentum at the end of the otherwise stable third quarter. Overall spending continues to be supported by high-net-worth and high-income shoppers benefiting from a strong stock market, while low-income consumers show signs of tightening. Price increases and a labor market that, while not continuously in negative growth, remains weak, are making many shoppers more cautious and pushing consumer confidence to near historic lows. The income gap has always been a primary concern for Federal Reserve officials. There is a clear division among FOMC monetary policy decision-makers on whether to cut rates again at the next meeting. However, rate futures traders still generally believe that the likelihood of a rate cut in December is higher than not. Amid concerns about consumer affordability in the market, retailers such as Walmart Inc. and TJX Companies (TJX Cos., operators of TJ Maxx and Marshalls) have noted that shoppers are increasingly seeking discounted goods and turning to essential items. Home Depot Inc. has also warned that many consumers are postponing significant home-related purchases. Looking ahead, data from credit bureau TransUnion shows that over half of Americans expect their holiday season spending this year to be at least on par with last year's. However, some of this may reflect the impact of price increases, as tariff policies have forced some retailers to reduce discounts for "Black Friday". The latest September retail sales data indicates that most consumers continued to opt for dining out. As the only service category in the U.S. retail data report, spending at restaurants and bars unexpectedly increased by 0.7%, continuing the previous strong growth trend. The retail sales report shows that the so-called "control group" sales - an important basis for calculating goods expenditure in GDP - decreased by 0.1% in September, marking the first decrease in five months. This index excludes food services, auto dealers, building materials stores, and gas stations. NRF predicts record consumer troops flocking to Thanksgiving shopping week The future consumer spending forecast data released by NRF is much more optimistic. The latest forecast report from the National Retail Federation (NRF) shows that the upcoming American Thanksgiving weekend is expected to see a record number of shoppers. At a time when some Wall Street analysts are questioning the shrinking wallets of American consumers and are pessimistic about the U.S. economic outlook, NRF swiftly informed them that at least in this year's holiday shopping season, such pessimistic views are unlikely to hold ground. NRF's latest forecast report points to another record-breaking Thanksgiving + "Black Friday" shopping extravaganza, as the U.S. non-farm labor market is heading towards a soft trajectorya crucial boost for the U.S. economy in the fourth quarter and even in 2026, considering that consumer spending-related items account for 60%-70% of U.S. GDP calculations. In the latest consumer survey, NRF analysts expect a record 1.869 billion people to participate in shopping from American Thanksgiving Day to the more eagerly awaited "Cyber Monday," surpassing last year's already strong record level by an additional 3 million people. "Black Friday" remains the most popular day of the year for shopping and snagging deals, with 70% (1.304 billion people) of surveyed respondents planning to go out shopping the day after Thanksgiving, followed by "Cyber Monday" (around 40%). Expectations for the relatively lesser-known "Small Business Saturday" indicate that 36% of respondents plan to head out, with many American consumers citing their reasons as supporting local small businesses. "Among the group planning to utilize discount promotions, over half say it's because the deals are too good to pass up. Others mention it's a tradition in American culture, or simply because they like starting the holiday shopping frenzy on this long weekend," said Phil Rist, Strategic Vice President of Prosper Insights & Analytics under NRF. NRF predicts that American consumers will spend over $1 trillion during the Thanksgiving holiday shopping season, with payment methods including debit cards (44%), credit cards (27%), and cash (16%), with an average budget of $890 per person for expensive gifts and other seasonal items. This year, 59% of American shoppers are expected to follow the digital trend, using digital wallets and apps for shopping, similar to recent years. The September retail report was originally scheduled to be released on October 16 but was postponed due to the government shutdown. The U.S. Census Bureau stated on Tuesday that the next release date has yet to be determined. Another report that was delayed and released on Tuesday shows that due to rising energy and food costs, prices paid by U.S. producers unexpectedly increased by 0.3% in September. A reading of a consumer confidence index for major corporations in November is expected to be released later on Tuesday evening Eastern Time. Since retail data is not adjusted for inflation, increased spending may reflect the impact of price increases rather than stronger demand. Moreover, these data largely reflect purchases of goods, which account for only about one-third of overall household expenditures. More comprehensive data on goods and services spending, adjusted for inflation, will be released on December 5th.