Stimulus checks spur retail sales to 1% gain

Retail sales jumped by the largest amount in six months in May as 57 million tax rebate checks helped offset the economic head winds buffeting consumers.

The Commerce Department said Thursday that retail sales improved 1% last month, the largest gain since November. A wide variety of retailers enjoyed a good month, and department stores and general merchandise stores saw the biggest growth in a year.

The May increase, which was double what economists had been expecting, indicated that the economy was getting a boost from the $50 billion in economic stimulus payments the government began sending out at the start of last month. Roughly 130 million households will have received rebate checks by July, when the stimulus payment schedule ends.

Highlighting job woes, the Labor Department reported that new applications for jobless benefits rose 25,000 last week to 384,000, the highest level since late March. The increase was much bigger than analysts expected. Last week, the government reported that the unemployment rate jumped to 5.5% in May from 5% in April -- the biggest one-month rise in 22 years.

In a third report, the Commerce Department said that business inventories grew 0.5% in April, more than double the 0.2% rise in March and the best showing since January.

Analysts were surprised by the solid increase in retail sales, noting that sales in April were also revised to show a gain of 0.4% instead of the original estimate of a 0.2% decline.

“Recession? What recession?” asked Joel Naroff of Naroff Economic Advisors in Holland, Pa. “Spending in April and May was solid in just about every category.”

The retail sales report showed that general merchandise stores, which include department stores and discounters, saw sales rise 1.2%, the sector’s best showing since a 2.1% increase in March 2007.

Despite soaring gasoline prices, auto dealers saw sales increase 0.3% in May after a 2.1% drop in April.

Gasoline stations said sales were up 2.6%, an increase that largely reflected soaring prices.