U.S. retail sales surged 1.4% in May

0 Comments | Deseret News (Salt Lake City), Jun 14, 2007 | by Martin Crutsinger Associated Press

WASHINGTON -- Consumers brushed off rising gasoline prices and stormed the malls in May, pushing up retail sales by the largest amount in more than a year.

The Commerce Department reported Wednesday that retail sales surged by 1.4 percent over April, double the increase analysts had expected.

The strong showing, which followed a 0.1 percent decline in April, was widely based. Auto dealers, department stores, specialty clothing stores and hardware stores all enjoyed hefty increases.

Also Wednesday, there was further support for the idea that the economy was rebounding after a weak start to the year. The Federal Reserve said its latest survey of business conditions found the economy was gaining momentum, bolstered by solid consumer spending and a rebound in manufacturing.

"If higher gasoline costs are hurting consumers, it cannot be seen in their spending as they bought everything possible in May," said Joel Naroff, chief economist at Naroff Economic Advisors, a private consulting firm.

The Fed survey will serve as the basis for discussion when the Fed next meets to consider interest rates. With the economy showing signs of rebounding, most analysts believe the Fed will leave rates unchanged at the June 27-28 meeting and possibly for the rest of the year.

The strength in consumer spending, which accounts for two-thirds of the economy, was welcome news on Wall Street. Investors saw it as an indication that the economy, which slowed to barely discernible growth in the winter, is starting to revive.

The Dow Jones industrial average surged 187.34, or 1.41 percent, to 13,482.35. The Standard & Poor's 500 index rose 22.67, or 1.52 percent, to 1,515.67, and the Nasdaq composite index rose 32.54, or 1.28 percent, to 2,582.31.

The strong showing for retail sales caught analysts by surprise. They had forecast growth of 0.7 percent.

The increase helped ease fears that consumer spending could falter in the month ahead because of higher gasoline prices, the significant correction in housing and recent increases in interest rates set by financial markets.

"The relatively strong job market has kept spending energized and will contribute to a solid bounce back in overall economic growth in the second quarter," said Brian Bethune, U.S. economist for Global Insight.

He said he expected consumer spending would grow at a 3 percent rate from April through June, down slightly from the 3.8 percent increase in the first three months of the year.

In a separate report, the Commerce Department said businesses increased their inventories held on shelves and lots by 0.4 percent in April. That was slightly higher than the 0.3 percent gain that Wall Street had expected.

Businesses had drawn down inventories in the first three months of this year, a factor that helped slow the economy's growth to a barely discernible 0.6 percent rate in the January-March period.

That was the weakest performance in more than four years. But inventory rebuilding is expected to help contribute to a rebound in growth in the second quarter; many analysts are looking for growth to accelerate to about 3 percent in the April-June period.

The Commerce Department report painted a more optimistic picture of consumer spending than did last week's report from the nation's big chain stores. Their report detailed moderate gains in their survey of same-store sales after a dismal April.

The 1.4 percent increase in May sales was the biggest one-month advance since a 3.3 percent surge in January 2006. It left sales at a seasonally adjusted annual rate of $377.9 billion in May.

On the Net: Retail sales: www.census.gov/retail