US consumer spending accelerates in May
Labor market robust as weekly jobless claims fall 4,000
WASHINGTON, June 14, (RTRS): US retail sales increased more than expected in May as consumers bought motor vehicles and a range of other goods even as they paid more for gasoline, the latest indication of an acceleration in economic growth in the second quarter.
Other data on Thursday showed a further tightening in labor market conditions, with first-time applications for unemployment benefits unexpectedly falling last week and the number of Americans on jobless rolls declining to a near 44-1/2-year low.
The reports came a day after the Federal Reserve raised interest rates for a second time this year and offered an upbeat assessment of the economy. The US central bank described economic activity as “rising at a solid rate” and the labor market as continuing to “strengthen.” The Fed forecast two more rate hikes in the second half of 2018.
Growth
“In short, the Fed was right to upgrade its assessment of economic growth to ‘solid’ in yesterday’s statement,” said Paul Ashworth, chief US economist at Capital Economics in Toronto.
The Commerce Department said retail sales jumped 0.8 percent last month, the biggest advance since November 2017. Data for April was revised up to show sales rising 0.4 percent instead of the previously reported 0.2 percent gain.
Economists polled by Reuters had forecast retail sales rising 0.4 percent in May. Retail sales in May increased 5.9 percent from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.5 percent last month after an upwardly revised 0.6 percent increase in April. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have risen 0.5 percent in April.
The strong retail sales report added to data ranging from the labor market to manufacturing and trade in suggesting the economy was regaining momentum in the second quarter after growth slowed at the start of the year amid a sharp step-down in consumer spending.
Based on the core retail sales data for April and May, economists said consumer spending was so far in the second quarter rising at an annualized rate of at least 3.5 percent. Consumer spending, which accounts for more than two-thirds of US economic activity, increased at an anemic 1.0 percent pace in the first quarter. Growth estimates for the April-June quarter are as high as a 4.6 percent rate and could get a lift from another report from the Commerce Department showing a rebound in business inventories in April. The economy grew at a 2.2 percent rate in the first quarter.
The dollar was trading higher versus a basket of currencies also as the European Central Bank signaled it would hold rates low through mid-2019. Prices for US Treasuries gained slightly. Stocks on Wall Street were higher.
Retail sales are being underpinned by a robust labor market, which is gradually boosting wage growth. A $1.5 trillion income tax cut, which came into effect in January, could also be lending support.
In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 218,000 for the week ended June 9.
Economists polled by Reuters had forecast claims rising to 224,000 in the latest week. The number of people receiving benefits after an initial week of aid declined 49,000 to 1.70 million in the week ended June 2, the lowest level since December 1973.