U.S. retail sales are surging and initial jobless claims are falling, solidifying expectations for a small interest rate cut

U.S. retail sales rose solidly in September, likely as lower gasoline prices gave consumers more money to spend in restaurants and bars, supporting the view that the economy maintained strong growth in the third quarter.

The Commerce Department reported a slightly stronger-than-expected increase in retail sales on Thursday, which also reflected a surge in sales at clothing and grocery retailers as consumers shopped more online and health and personal care stores.

Solid income growth, ample savings and strong household balance sheets have supported consumption and the broader economy. While labour market momentum has slowed, job cuts remain at historically low levels, supporting wage growth.

Signs of economic resilience may not deter the Federal Reserve from cutting interest rates again next month, but will reinforce expectations of a modest 25 basis point cut in borrowing costs.

(Half-year chart of Federal Reserve retail sales data)

The Atlanta Fed raised its forecast for third-quarter gross domestic product growth to an annualised rate of 3.4 per cent from 3.2 per cent. The economy grew 3.0 per cent in the second quarter.

"Consumer spending was strong in September, suggesting that the economy grew well above trend in the last quarter," said Jeffrey Roach, chief economist at LPL Financial. "Our baseline scenario remains that the Fed could cut rates by 25 basis points in both November and December."

The US Bureau of Statistics said retail sales rose 0.4 per cent in September from the previous month, after confirming growth of 0.1 per cent in August. Economists polled by Reuters had expected retail sales, which are mainly goods and are not adjusted for inflation, to rise 0.3 per cent, with forecasts ranging from flat to 0.8 per cent.

Retail sales rose 1.7% year-on-year in September. Sales at food service and drinking establishments rose 1.0% in September and 0.5% in August, the only services segment in the report. Economists see eating out as a key indicator of a household's financial health.

Retail sales growth is not in line with lackluster consumer confidence and comments from some businesses.foreign exchange trading platformHouseholds are showing some hesitation about spending ahead of the US Presidential Election on November 5.

Nestle ́'s chief financial officer on Thursday blamed "election fears" in part for the packaged food maker's slowdown in US sales, but economists said consumption was being downgraded as consumers sought cheaper alternatives.

Core retail sales, which exclude cars, petrol, building materials and food services, rose 0.7 per cent in September after rising 0.3 per cent in August-on-month, the best indicator of the consumer spending component of GDP. Economists raised their forecast for third-quarter consumer spending growth to 3.4 per cent from 3.0 per cent the month before. Consumer spending rose 2.8 per cent in the second quarter.

Initial claims for state unemployment benefits fell by 19,000 last week to a seasonally adjusted 241,000, but hurricanes and a month-long strike by Boeing BA. N have made it harder to get a clear picture of the labor market, a Labor Department report showed.

Economists had forecast initial jobless claims of 260,000 last week.

A Federal Reserve report shows that Boeing's labor dispute and hurricane dealt a blow to industrial production in September.

The jobless benefits figures come during the period the government surveyed employers for the non-farm payrolls section of its October jobs report. Claims rose between September and October, when non-farm payrolls rose at the fastest pace in six months.

Economists expect Fed policymakers to put less weight on the jobs report when they meet in early November. The October report will be released just days before the US election.