Consumer spending is a crucial driver of economic growth, and a new report showing a rise in sales allayed recession fears.According to a recent report from The New York Times, consumer spending is a crucial factor in driving economic growth. The report shows that retail sales in July exceeded expectations, providing a positive outlook on consumer spending and potentially easing concerns about the strength of the economy. This news led to a 1.6 percent increase in the S&P 500 and a rise in the tech-heavy Nasdaq.

The Commerce Department reported that retail sales increased by 1 percent in July, surpassing the 0.4 percent rise that economists had predicted. Analysts attribute this jump to a rebound in auto sales, as disruptions caused by cyberattacks faded. However, even when excluding auto and gasoline sales, which can be more indicative of spending trends, retail sales still exceeded expectations with a 0.4 percent increase.

Consumer spending accounts for approximately two-thirds of the U.S. economy, making it a crucial driver of economic growth. The strong retail sales report, which is not adjusted for inflation, suggests resilience in consumer spending and provides reassurance after recession fears were sparked by weaker-than-expected employment numbers earlier this month.

Nationwide’s chief economist, Kathy Bostjancic, predicts that based on the “solid” retail sales data, consumer spending is on track for 3.5 percent growth in the third quarter. This would contribute to overall economic growth of more than 2 percent for the quarter, according to Bostjancic.

Despite warnings of an economic downturn since the Federal Reserve began raising interest rates two years ago, the U.S. economy has consistently defied expectations. Robust consumer spending has played a significant role in the rapid and forceful recovery from the shock of the coronavirus pandemic.

The retail sales report is just one of several positive data points this week that have eased economic worries. On Thursday, Walmart reported higher-than-expected sales for the latest quarter and raised its forecast for the year. Additionally, unemployment claims fell from the previous week, indicating strength in the job market. Inflation also dropped below 3 percent for the first time since 2021, solidifying predictions that the Fed will lower interest rates next month.

Overall, these positive economic indicators suggest that the economy is not heading towards a recession, which could alleviate pressure on the Fed to take action. 

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