In a sensitive economy in which growth is slowing enough that recession fears are high, every single economic report is given a very close look. Retail sales matter when it comes to measuring gross domestic product. After all, roughly 70% of the GDP in the United States is tied to consumer spending of some sort.

The Census Bureau reported on Wednesday that retail sales for the month of September unexpectedly dropped by 0.3% on the headline report. Econoday and Dow Jones both had consensus estimates that called for a gain of 0.3% in September. While the unexpected drop is a negative, it is also worth considering that the prior headline retail sales for August was revised from a 0.4% gain to a 0.6% gain.

Retail sales excluding autos fell by 0.1% in September, rather than the expected 0.2% gain, and August’s reading of 0.0% change was revised to a gain of 0.2%.

When retail sales are calculated without autos and gasoline, the September reading showed a 0.0% change. Econoday had a consensus for an expected gain of 0.3%. And the 0.1% gain previously reported in August was revised to a 0.4% gain.

Monthly readings can be a bit obscure compared with the annual changes, and that was definitely the case in September. The Census report said that retail trade sales were up by 4.0% when compared to September of 2018, and the non-store retail sales were up by 12.9% from the year-ago readings. Miscellaneous store sales were up by 9.3% from last year.

All in all, the headline machines in the media are likely to point out that the unexpected declines are bad and that the trade war may be partly to blame. That said, the numbers are still strong on an annualized basis, and the correction numbers still seem to resemble slower growth rather than outright economic contraction that would be recessionary. That said, any additional negative reports only make the case that much stronger that Federal Reserve Chair Jerome Powell and the Fed will blink and decide to lower interest rates again at the end of October or in December.

To prove the point, federal fund futures indicated that there was better than an 86% chance of a rate hike in October, compared with 74% a day earlier. With fed funds still in a target range of 1.75% to 2.00%, there is still plenty of room for the Fed to lower rates and not have to worry about those negative interest rates from Europe or Japan competing.

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