Latest U.S. economic data shows heat

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For all the talk of soft landings and fading inflation pressure, the latest round of data on the U.S. economy still shows some heat.

Why it matters: Demand across the U.S. economy remains solid — a key reason the nation has dodged a recession.

The flip side is the possibility that inflation will be more persistent than policymakers anticipate, owing to factors the Federal Reserve can’t control: energy prices.

Driving the news: Retail sales rose 0.6% in August — much more than economists expected. That was largely due to higher prices at gasoline stations, where receipts increased by 5.2%.

But excluding gas stations and auto shops, spending still powered ahead, increasing 0.2% (instead of the outright decline forecasters expected).

Between the lines: Even as consumers were squeezed by higher prices at the pump, they didn’t feel the need to pull back on everything else.

Spending is still solid across a range of categories, including clothing stores, electronics shops and health stores.

What they’re saying: This report “does not look like the last gasp of a consumer that is struggling on the ropes, being pummeled by higher interest rates and weak confidence,” Richard de Chazal, a macro analyst at William Blair, wrote in a note.

“Rather, it shows a consumer that is still hanging in there, with low unemployment and steady income, excess savings, and confidence that seems to be recovering as the economy continues to defy recession predictions.”

Jobless claims, also out Thursday, continued to show low levels of layoffs, pointing to a still-solid labor market.

Meanwhile, the Producer Price Index, which measures wholesale prices that might eventually get passed on to consumers, rose a more-than-expected 0.7% in August — the biggest monthly spike in over a year.

Much like the big headline gain for the Consumer Price Index released Wednesday, PPI’s jump was caused by soaring energy costs that looked to be in the rearview mirror: The energy index rose by more than 10%, while gasoline prices jumped 20%.

But even stripping out energy, food and trade services, the core PPI rose 0.3%, implying some inflation pressure remains in the pipeline even apart from the oil price surge.

The bottom line: The economy continues to be more resilient, with strong demand that could make the inflation battle even harder. The question is whether it continues.

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