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 percent in May from April. That was up from a 0.1 percent gain the previous month and was the fastest pace since February.
The April gain was led by a 1.8 percent jump in auto sales, the biggest increase in six months. Excluding volatile sales of autos, gas, and building supplies, core retail sales rose 0.3 percent —
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 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 probably pick up in the second half of the year.
Paul Dales, senior US 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 percent annual pace, down to around 2.5 percent or less.
in the current quarter.
There are signs 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 supporting the economy even as manufacturing weakens.
The gains in home sales and auto sales have been supported by the Federal Reserve’s policy of keeping interest rates low. The central bank is buying $85 billion per month in bonds to keep downward pressure on long-term rates.
Fed policy makers hold a two-day meeting next week that will be closely watched for any signals that the Fed might be getting ready to scale back its bond purchases.
The economy created about 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 percent in May. Sales at hardware stores increased 0.9 percent.
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.