Retail sales jump 1.2 percent

By Josh Boak
AP Economics Writer

WASHINGTON (AP) — Americans stepped up their spending at retailers in May, especially for autos, clothes and building materials, in a sign that strong job growth has begun to boost store sales.

Retail sales rose at a seasonally adjusted 1.2 percent annual rate after a 0.2 percent gain in April, the Commerce Department said Thursday. Over the past 12 months, sales have risen a solid 2.7 percent.

The upswing in shopping reflects greater confidence in an economy still shaking off the ravages of a recession that officially ended six years ago. Employers have added more than 3 million jobs over the past year. Yet until last month, many workers appeared to be saving as much of their paychecks as they could.

"The whole package is looking heartier," said Jennifer Lee, a senior economist at BMO Capital Markets. "Robust job growth, near decade-high auto sales, revolving credit rising at its second-fastest pace in eight years, and now, solid retail sales."

Excluding the volatile categories of autos, gas, building materials and restaurants, so-called core retail sales — which factor into the government's official measure of economic growth — rose at a solid 0.7 percent annual rate in May.

Some economists saw the increase as evidence of stronger economic growth during the current April-June quarter than earlier assumed. Paul Ashworth, chief U.S. economist at Capital Economics, responded to the report by suggesting that annualized second quarter growth could approach a healthy 3 percent annual rate.

Spending at auto dealers and building materials stores jumped at a 2 percent annual rate in May, evidence that consumers are making longer-term investments in their homes and cars.

The figures confirm the strength seen in separate reports on autos and housing. People bought cars and trucks last month at an annual pace of 17.8 million — the fastest monthly rate since 2005, according to industry analyst Autodata Corp.

And the number of new-home purchases has surged nearly 24 percent year-to-date, according to the government.

More Americans are also upgrading their clothing. Thursday's report showed that shopping at clothiers rose 1.5 percent last month.

Sales at gasoline stations increased 3.7 percent, largely reflecting the higher costs of gas since April. Prices at the pump rose by roughly 14 cents a gallon to $2.74 during Memorial Day weekend, according to AAA's Daily Fuel Gauge Report.

Spending growth at restaurants was subdued last month, inching up at just a 0.1 percent annual rate. But over the past year, restaurant and bar receipts have surged 8.2 percent.
Economists watch the retail sales report closely because it provides a limited but early indication each month of the willingness of Americans to spend. Overall consumer spending drives 70 percent of the economy. Retail sales account for about one-third of spending, with services such as haircuts and Internet access making up the remaining two-thirds.

Job gains over the past year have helped drive down the unemployment rate to 5.5 percent from 6.3 percent in May 2014. Still, many Americans were hesitant to spend, probably because their incomes were barely rising above inflation.