WASHINGTON – Retail sales rose more than expected in May and first-time applications for jobless benefits fell last week, showing signs of resilience in the economy despite belt-tightening in Washington.
"There is an emerging positive story for consumers and the potential for a virtuous cycle to take hold," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.
The Commerce Department said on Thursday retail sales increased 0.6 percent after edging up 0.1 percent in April. Sales had been expected to rise 0.4 percent.
Retail sales, which account for about 30 percent of consumer spending, were boosted by a surge in motor vehicle purchases as well as gains in home building materials.
So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, increased 0.3 percent after rising 0.2 percent in April.
That offered hope consumer spending probably would not slow too much in the second quarter, after spending fell in April for the first time in a year.
It was also an indication households were adjusting well to higher taxes and deep government spending cuts, as indicated by a surge in consumer confidence last month, economists said.
"Pressure is still largely on the consumer to carry most of the water to keep the economy moving forward," said Baird.
Consumer spending, which accounts for 70 percent of U.S. economic activity, grew at its fastest pace in two years in the first quarter, boosted in part by demand for utilities.
It is expected to slow this quarter and hold economic growth to below a 2 percent annual pace. The economy grew at a 2.4 percent rate in the first three months of the year.
In a separate report, the Labor Department said initial claims for state unemployment benefits declined 12,000 to a seasonally adjusted 334,000 last week. The report suggested that the recent pace of steady of job gains continued in early June.
Stocks on Wall Street opened little changed. U.S. Treasuries were higher, while the dollar was down slightly against a basket of currencies.
While the data indicated a pick-up in economic momentum after activity slowed early in the second quarter, it is unlikely the Federal Reserve will pull back on monetary stimulus anytime soon as manufacturing is struggling.
No changes are expected to the U.S. central bank's monthly purchases of $85 billion in bonds when its policy-setting committee meets June 18-19.
"Even though Fed policy is more focused on the labor market, better aggregate demand news will give some comfort that solid job gains are sustainable," said Michael Feroli, an economist at JPMorgan in New York.
Last month, retail sales rose in most categories, with receipts at auto dealerships rising 1.8 percent - the biggest increase since November - after advancing 0.7 percent the prior month.
Excluding autos, sales gained 0.3 percent after being flat in April.
The increase in sales came despite a 0.2 percent drop in receipts at gasoline stations. Excluding gasoline stations, sales rose 0.6 percent.
Sales at building materials and garden equipment suppliers increased 0.9 percent after rising 3.6 percent in April. Demand for housing is boosting home building, which is helping to anchor the broader economy's recovery.
There were also gains in sales at sporting goods, hobby, book and music stores, which rose 0.6 percent. But receipts at clothing stores slipped 0.2 percent.
Sales at electronics and appliances stores fell 0.4 percent, while receipts at furniture stores dropped 0.8 percent.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)