BIG NUMBER | 1.4%

• The retail sales control group (excluding volatile categories like autos and gas) jumped 1.4% in August after a July decline, beating the 0.4% forecast and marking the strongest gain since September 2024
• Economic projections remain strong: Atlanta Fed's GDPNow model forecasts 5.1% real GDP growth for Q3, while the St. Louis Fed's PCENow model projects 4.1% consumer spending growth for the same period
• Federal Reserve committee members see no downside risks to GDP growth projections, viewing risks as balanced or tilted upward, suggesting the economy can absorb higher rates while supporting equity markets

Market Summary: Consumer Spending Surge Signals Economic Resilience

Key Figures:

U.S. retail sales control group jumped 1.4% in August, the largest monthly gain since September 2024, significantly exceeding economist expectations of 0.4% growth. This measure excludes volatile categories and directly feeds into GDP calculations.

Economic Indicators:

• Consumer spending accounts for approximately two-thirds of U.S. GDP growth
• Atlanta Fed's GDPNow model projects 5.1% real GDP growth for Q3
• St. Louis Fed's PCENow model forecasts 4.1% rise in real consumer spending for Q3
• August job growth exceeded expectations

Market Context:

Despite headwinds from rising interest rates, higher gas prices, and economic uncertainty, American consumers continue robust spending patterns. The retail sales control group's sharp rebound from July's decline demonstrates underlying economic strength.

Key Takeaway:

The Federal Reserve's recent policy meeting revealed no committee members expressing downside GDP risks, with projections either balanced or tilted upward. This suggests economic strength—rather than inflation concerns—is driving current yield increases, particularly real yields.

Investment Implications:

Strong consumer spending and corporate earnings should enable equities to absorb higher interest rates and maintain resilience. The data reinforces the economy's durability despite monetary tightening, supporting a positive outlook for risk assets as long as fundamental strength persists.

Sectors Affected:

Retail sector performance directly benefits from sustained consumer activity, with broader positive implications for the overall equity market given spending's substantial contribution to economic growth.

The analysis comes from Horizon Investments' asset management team.