U.S. retail sales jump 0.6 percent in May on autos

A 1.8 percent jump in vehicle sales in May led the increase in retail activity, the biggest rise in six months.
A 1.8 percent jump in vehicle sales in May led the increase in retail activity, the biggest rise in six months. (TY WRIGHT / Bloomberg News)
Posted: June 14, 2013

WASHINGTON - Americans stepped up purchases at retail businesses in May, spending more on cars, home improvement, and sporting goods. The gain shows that 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 percent in May from April. That's up from a 0.1 percent gain the previous month and is the fastest pace since February.

The gain was led by a 1.8 percent jump in auto sales, the biggest increase in six months. Excluding volatile autos, gasoline and building supplies, core retail sales rose 0.3 percent. That's slightly higher than the 0.2 percent April increase.

Sales increased at hardware and general merchandise stores, but fell at furniture and appliance stores.

The retail-sales report is the government's first look each month at consumer spending, which drives 70 percent 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 percent. Most economists predict that growth is slowing in the April-June quarter to an annual rate of 2 percent 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 thinks consumer spending is slowing from the first quarter's 3.4 percent annual pace, down to about 2.5 percent 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 a 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 Chevrolet dealerships in North Jersey, customers seem more confident than they have been in the last 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 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 Commerce Department's Thursday report said sales at hardware stores increased 0.9 percent, and sales at sporting goods and general-merchandise stores also increased.

Sales fell 0.8 percent at furniture stores and 0.4 percent at electronics and appliance stores.

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