WASHINGTON: U.S. retail sales increased in May and sales for the prior month were revised higher, suggesting a pick-up in consumer spending that could ease fears the economy was slowing down sharply in the second quarter.
The fairly upbeat report from the Commerce Department on Friday followed a raft of weak data, including a step-down in hiring in May and tame inflation readings, that have led economists to believe that the Federal Reserve will signal a rate cut later this year when policymakers meet next week.
Financial markets have priced in two rate cuts this year, driven primarily by a recent escalation in the trade war between the United States and China, which economists have warned could undercut economic growth. The economy will next month celebrate 10 year of expansion, the longest in history.
"Although it won't change the view that the Fed will feel compelled to ease at some point this year, this eases some of the pressure," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. "And it is likely welcomed."
The Commerce Department said retail sales rose 0.5per cent last month as households bought more motor vehicles and a variety of other goods. Data for April was revised up to show retail sales gaining 0.3per cent, instead of dropping 0.2per cent as previously reported.
Economists polled by Reuters had forecast retail sales climbing 0.6per cent in May. Compared to May last year, retail sales increased 3.2per cent.
Excluding automobiles, gasoline, building materials and food services, retail sales advanced 0.5per cent last month after an upwardly revised 0.4per cent rise 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 been unchanged in April. Consumer spending accounts for more than two-thirds of economic activity.
The dollar rose to a session high against a basket of currencies following the report, while U.S. Treasury prices fell. U.S. stock index futures pared losses.
The solid gains in core retail sales in April and May suggested consumer spending was gaining speed in the second quarter after braking sharply in the January-March quarter.
That could see economists raising their second-quarter GDP growth estimates, which are currently below a 2.0per cent annualized rate. The economy grew at a 3.1per cent pace in the January-March quarter after getting a temporary boost from exports and an accumulation of inventory.
Exports dropped in April and inventory investment is slowing. In addition, manufacturing production and home sales fell in April. The outlook for consumer spending is mixed. While consumer confidence remains strong, wage growth retreated in May and hiring moderated sharply.
Overall, the economy is losing steam as the stimulus from last year's US$1.5 trillion tax cut and increased government spending dissipates. The trade war between the United States and China, which escalated recently, is also hurting the economy.
Last month, sales at auto dealerships accelerated 0.7per cent after dropping 0.5per cent in April. Receipts at service stations rose 0.3per cent.
Building materials and garden equipment sales edged up 0.1per cent, while online and mail-order purchases jumped 1.4per cent.
Sales at clothing stores were unchanged and receipts at furniture outlets nudged up 0.1per cent. Sales at bars and restaurants increased 0.7per cent last month, while those at hobby, musical instrument and book stores rose 1.1per cent.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)