Car Buyers Help Push Retail Sales Up in May

Americans readily snapped up cars, furniture and department store goods in May, boosting retail sales by a stronger-than-expected 0.9% to a seasonally adjusted $224.6 billion, the Commerce Department said Thursday.

The strongest auto sales in 15 months helped fuel the monthly gain, which came on the heels of a strong gain in April.

Meanwhile, the Labor Department said first-time claims for unemployment benefits fell by 23,000 to 315,000 last week, the latest evidence that ample job opportunities were providing consumers with the income and confidence to keep spending freely.

“The consumer is still on a rocket trajectory,” said economist Robert Dederick of Northern Trust Co. in Chicago. “And why not, given the 4.3% unemployment rate, the strong increase in income [and] the decline in inflation.”

Analysts said Asia’s deepening economic woes made Japanese cars and other products cheaper for Americans and have prompted a flood of capital into the United States, bolstering demand.

“The consumer, partly because of the positive effects on America from Asia’s ongoing problems, is proving to be a powerful offset to an Asian slowdown,” said Dederick.

Retail sales are a key gauge of consumer spending, which accounts for two-thirds of the economy. The report comes as policymakers are watching the economy for signs of inflation that might prompt the Federal Reserve to raise interest rates.

Consumer spending powered economic growth at a torrid 4.8% annual rate in the January-March quarter, more than compensating for a deterioration in the trade deficit with Asia.

In its May report, the department said sales of new cars and trucks jumped 2.4% last month, double the 1.2% April increase. It was the strongest rise in auto sales, which account for a quarter of retail sales, since a 3.5% surge in February 1997.

Although overstocked inventories and shrinking overseas sales will slow industrial activity, analysts said consumer spending could help offset that, bolstering the economy in the second quarter.

Financial markets showed little direct reaction to the reports and instead were dominated by concern over Asia.

Northern Trust’s Dederick said he expected growth in the gross domestic product--the broadest measure of the economy--to slow to a 2% to 2.5% rate in the second quarter from the first quarter’s sizzling 4.8% pace.

“There will be no pronounced slowing, but we’re not going to get a repeat of the first quarter,” he said. “The question always has been not if there will be a slowdown, but what will cause it--Asia or the Fed stepping in [with higher rates].”

The recent strength in retail sales was striking.

Sales of all types of durable goods, not just cars but furniture, appliances and other goods meant to last three years or more, rose a solid 1.7% after a 0.7% rise in April.

Sales of more quickly used nondurable goods, such as food and paper products, rose 0.4%, following a 0.6% April rise.

The rise in April sales, originally reported as 0.5%, was revised upward.

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Retail Sales

In billions of dollars, seasonally adjusted:

May: $224.6 billion

Source: Commerce Department