US consumer spending grew at a fairly healthy pace over the past two months, but factory production slipped in August, providing the Federal Reserve a mixed picture of the economy ahead of a rate-setting meeting later this week.
The Commerce Department said on Tuesday that retail sales excluding automobiles, gasoline, building materials and food services increased 0.4 percent in August after an upwardly revised 0.6 percent increase in July.
These so-called core retail sales, which correspond closely to the consumer spending component of gross domestic product, provided the latest sign of sturdy economic momentum and suggested the recent stock market sell-off had little immediate impact on US household spending.
A separate report from the Federal Reserve, however, showed manufacturing output fell a sharper-than-expected 0.5 percent as auto production slid, after a rise of 0.9 percent in July.
Investors pinned their response on the general firm spending figures. US stocks opened higher, the dollar strengthened against a basket of currencies, and prices for US government bonds fell, sending their yields higher.
Signs of sustained strength in the economy could encourage the US central bank to raise benchmark overnight interest rates from near zero. The Fed's policy-setting committee meets on Wednesday and Thursday against the backdrop of a tightening US labor market, low inflation and slowing global growth.
US financial markets have sharply dialed down expectations of a rate hike in the wake of the recent volatility in global equity markets. They are now pricing in a 25 percent probability that the Fed will announce a rate hike this week.
Data ranging from employment to housing have suggested the US economy retained most of its momentum from the second quarter, when output expanded at a 3.7 percent annual pace.
The manufacturing sector, however, has been struggling, faced with the headwinds of a strong dollar, slack economies oversees and lower oil prices.
A third report on Tuesday showed factory activity in New York state contracted in September for a second straight month.The general bright news on spending was tempered by the soft factory data.
The Fed said auto and autopart production contracted 6.4 percent last month, reversing much of the strong gains registered in July.