U.S. 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 labour 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 U.S. central bank described economic activity as “rising at a solid rate” and the labour market as continuing to “strengthen.” The Fed forecast two more rate hikes in the second half of 2018.
“In short, the Fed was right to upgrade its assessment of economic growth to ‘solid’ in yesterday’s statement,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.
The Commerce Department said retail sales jumped 0.8 per cent last month, the biggest advance since November 2017. Data for April was revised up to show sales rising 0.4 per cent instead of the previously reported 0.2 per cent gain.
Economists polled by Reuters had forecast retail sales rising 0.4 per cent in May. Retail sales in May increased 5.9 per cent from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.5 per cent last month after an upwardly revised 0.6 per cent 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 per cent in April.
The strong retail sales report added to data ranging from the labour 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.
Growth estimates for the April-June quarter are as high as a 4.6 per cent annualized rate. The economy grew at a 2.2 per cent rate in the first quarter.
The dollar extended gains versus a basket of currencies after the data while prices for U.S. Treasuries fell. U.S. stock index futures were trading higher.
Retail sales are being underpinned by a robust labour market, which is gradually boosting wage growth. 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.
The labour market is considered to be close to or at full employment, with the jobless rate at an 18-year low of 3.8 per cent. The unemployment rate has dropped by three-tenths of a percentage point this year. It is near the Fed’s forecast of 3.6 per cent by the end of this year.
Layoffs have remained very low amid signs of growing worker shortages across all sectors of the economy. The were a record 6.7 million job openings in April. The number of unemployed people per vacancy slipped to 0.9 from 1.0 in March, indicating that most people looking for a job are likely to find one.
Retail sales in May were boosted by a 0.5 per cent rise in receipts at auto dealerships. Auto sales rose 0.2 per cent in April. Sales at service stations surged 2.0 per cent last month, reflecting higher gasoline prices.
Prices at the pump have risen by 15.5 per cent this year, according to U.S. Energy Information Administration data. Expensive gasoline, if sustained, could pull spending away from other categories.
Sales at building material stores rebounded 2.4 per cent last month after declining 0.8 per cent in April. Receipts at clothing stores surged 1.3 per cent, the largest gain since March 2017.
Sales at restaurants and bars jumped 1.3 per cent, the biggest rise since January 2017. There were also increases in online retail sales, but receipts at furniture stores fell 2.4 per cent, the largest drop since December 2013.
Americans also continued to cut back on spending on sport and hobbies. Sales at sporting goods, hobby and musical instrument and book stores fell 1.1 per cent after slipping 0.2 per cent in April.