U.S. retail sales exceeded all forecasts and industrial production strengthened last month, fresh evidence of a resilient American consumer whose spending is helping stabilize manufacturing.

Sales, unadjusted for inflation, increased 0.7% after upwardly revised advances in the prior two months, according to the Commerce Department. So-called control group sales – which are used to calculate spending on merchandise in the gross domestic product report – rose a better-than-expected 0.6%.

Robust consumer demand, in the aftermath of September data showing stubborn inflation and surging job growth, risks prompting the Federal Reserve to raise interest rates again. The reports prompted a slew of economists, from Goldman Sachs Group Inc. to JPMorgan Chase & Co. and Morgan Stanley, to boost their tracking estimates for third-quarter GDP.

The 10-year Treasury yield jumped to the highest level since 2007, while the S&P 500 Index fell. Traders increased bets of a rate hike in the coming months and pushed bets on the first cut to later in 2024.

The advance in sales illustrates a consumer who is still delivering for the economy, seemingly undaunted by high prices. Spending is being fueled by a robust labor market and defying economists’ expectations of a slowdown on the back of a retreat in pandemic-related household savings.

“The death of the U.S. consumer has been greatly exaggerated,” Omair Sharif, president of Inflation Insights LLC, said in a note. Including control group sales revisions, “this is a good all-around report that shows continued strength in consumer spending.”

Control group sales, which exclude food services, auto dealers, building materials stores and gasoline stations, rose an annualized 6.4% in the three months through September. That’s the largest end-of-quarter advance since June 2022.

Resilient demand is helping to shore up the nation’s manufacturers. The Fed’s index of U.S. industrial production rose in September to the highest level in nearly five years, led by strength in the mining and manufacturing sectors. Factory output last month was bolstered a pickup in the production of both consumer goods and construction supplies.

In the July-to-September period, industrial production was largely fueled by a surge in utility output and a pickup in mining that included higher oil and gas extraction. Manufacturing is also finding some footing as retailers make progress getting inventories more in line with demand.

“The mighty U.S. consumer continues to fuel demand and factories pushed ahead despite several headwinds (including the UAW strike),” Priscilla Thiagamoorthy, senior economist at BMO Capital Markets, said in a note.

“While this may not be quite enough to move the Fed from the sidelines in November, a resilient US economy means the central bank’s job to cool the economy and restore price stability may not be done yet,” Thiagamoorthy said.

Morgan Stanley economists boosted their third-quarter GDP growth forecast to 4.9% on the back of Tuesday’s data. JPMorgan now sees 4.3% and Goldman Sachs lifted its estimate to 4%.

Purchases rose in eight out of 13 categories last month, including stronger receipts at restaurants, motor vehicle dealers and personal care stores, the retail sales report showed. Sales of motor vehicles jumped 1% in September, the largest gain in four months and despite higher financing rates.

Purchases made at restaurants and bars – the only service-sector category in the report – increased 0.9% last month.

“As long as businesses keep producing and hiring and consumers keep spending, it can be a bit of a virtuous cycle,” said Kayla Bruun, senior economist at Morning Consult LLC. “With all the headwinds from inflation and interest rates, you would think that that would break down, but it seems to be working.”

While inflation is still running well above the Fed’s 2% target, the prices of key consumer goods including apparel and furniture fell sharply last month. The price declines help explain a more restrained value of receipts at clothing retailers and appliances merchants in September. Apparel store sales fell 0.8% in September, the first decline in six months.

The retail figures largely reflect spending on merchandise, limiting the takeaways of this particular report. Real spending on both goods and services for September will be released later this month.

Separate data on Tuesday showed homebuilder sentiment decreased in October to the lowest level in nine months. Sentiment and sales have been under pressure for much of the past year because of rising mortgage rates and high home prices.

–With assistance from Michael Mackenzie.

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