WASHINGTON – Americans stepped up purchases at retail businesses in May, spending more on cars, home improvements and sporting goods. The gain shows consumers remain resilient despite higher taxes and could drive faster growth later this year.
The Commerce Department said Thursday that retail sales increased 0.6 per cent in May from April. That’s up from a 0.1 per cent gain the previous month and the fastest pace since February.
The April gain was led by a 1.8 per cent jump in auto sales, the biggest increase in six months. Excluding volatile autos, gas and building supplies, core retail sales rose 0.3 per cent. That’s slightly higher than the 0.2 per cent April increase.
Sales increased at hardware and general merchandise stores, but fell at furniture and appliance stores.
Separately, the Labor Department said the number of Americans seeking unemployment benefits dropped 12,000 last week to a seasonally adjusted 334,000. The decline suggests steady job gains will endure.
The retail sales report is the government’s first look each month at consumer spending, which drives 70 per cent of economic activity.
Solid job growth and rising home prices have allowed consumers to withstand an increase this year in Social Security taxes, which has lowered take-home pay for most Americans.
Consumer spending from January through March grew at the fastest pace in more than two years. That helped the economy expand at a solid annual rate of 2.4 per cent. Most economists predict that growth is slowing in the April-June quarter to an annual rate of 2 per cent or less. But many say growth will likely pick up in the second half of the year.
Paul Dales, senior U.S. economist at Capital Economics, said the May increase in retail spending was stronger than anticipated. Lower gas prices may have helped, he noted.
Even with the gain, he believes consumer spending is slowing from the first quarter’s 3.4 per cent annual pace, down to around 2.5 per cent or less in the current quarter.
“Households may … be getting over the tax hikes and spending some of the savings from the recent fall in gasoline prices,” Dales said.
There are signs that spending could strengthen in the second half of the year. Consumer confidence rose to five-year high in May. And steady gains in home sales and construction are providing support for the economy even as manufacturing weakens.
At Judy Schumacher Tilton’s two New Jersey Chevrolet dealerships, customers seem more confident than they’ve been in the past few years.
The combination of low interest rates and more fuel-efficient vehicles has lifted May sales well above year-ago levels.
“I feel that auto sales are truly on the upswing,” she said. “It’s like everything’s coming together.”
The gains in home sales and auto sales have been supported by the Federal Reserve’s low interest rate policies. The central bank is buying $85 billion per month in bonds to keep downward pressure on long-term rates. Fed policymakers hold a two-day meeting next week that will be closely watched for signals that the Fed might scale back its bond purchases.
The economy created 175,000 jobs in May, a solid month of hiring in line with the average increase over the previous 12 months.
Excluding autos, retail sales rose 0.3 per cent in May. Sales at hardware stores increased 0.9 per cent, and sales at sporting goods and general merchandise stores also increased.
Sales fell 0.8 per cent at furniture stores and 0.4 per cent at electronics and appliance stores.
AP Auto Writer Tom Krisher in Detroit contributed to this report.