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U.S. Retail Sales Rose 0.5% as Consumers Show More Confidence

Online, gas purchases fuel May’s increase

A store advertises a clothing sale Thursday in New York. ENLARGE
A store advertises a clothing sale Thursday in New York. Photo: Mark Kauzlarich/Bloomberg News
WASHINGTON—Sales at U.S. retailers increased solidly in May, adding to evidence of accelerating economic growth despite a recent slowdown in hiring.
Led by increased spending online and at gas stations, retail sales increased 0.5% in May from the prior month to a seasonally adjusted $455.64 billion, the Commerce Department said Tuesday. Economists surveyed by The Wall Street Journal had expected sales would increase 0.3% from the prior month.
Sales for April were unrevised at a 1.3% gain, the strongest advance since March 2015.
The latest data indicates consumer spending, which accounts for two-third of U.S. economic output, is healthy. Add in evidence of firming inflation, a solid housing market, low layoffs and rising number of job openings, and the economy would appear to stand on decent footing—outside of a May jobs report showing that hiring fell sharply.
The latest data presents a complicated picture to Federal Reserve officials beginning a two-day meeting Tuesday. May’s job increase of just 38,000, the weakest performance since September 2010, likely takes any rate increase off the table this week. But if the economy is accelerating and inflation is firming, that could give policy makers leeway to signal a rate increase could come in July, if the hiring picture improves.
The Fed “should be encouraged” by the retail report, said Sung Won Sohn, an economist at California State University-Channel Islands. “However, the monetary authorities would want to make sure that the economy, both employment and retail sales, are on clear upward trends before pulling the trigger again.”
The majority of economists surveyed by The Wall Street Journal earlier this month, after the latest jobs report, predicted a July increase in the Fed’s benchmark rate. It would be the first increase since December.
U.S. economic growth slowed to a 0.8% annualized advance in the first quarter, which partially reflected slower gains in consumer spending. Stronger spending in recent months suggests a significant acceleration. After Tuesday’s report, Credit Suisse raised its second-quarter projection to a 3% advance from 2.8%. That rate is significantly better than average growth during the expansion.
The retail report “provides strong support to the view that U.S. growth is rebounding,” Credit Suisse economist Jeremy Schwartz wrote in a note to clients. “While the recent slowdown in payrolls is still a concern, the persistence of strong consumer spending suggests household fundamentals are not breaking down significantly.”
A separate measure of Commerce Department consumer spending that includes services not measured in the retail report rose the most in April than any month since August 2009.
Compared with a year earlier, overall sales grew 2.5%. That is above the annual rate of inflation, which has been running at about 1% this year, as measured by the consumer-price index.
Tuesday’s report showed May’s retail gain was led by a 1.3% gain in nonstore sales, which includes purchases on Amazon.com. That category grew 12.2% from a year earlier, far outpacing every other sector of retail tracked by the government.
Purchases of motor vehicles and parts rose 0.5% last month. Spending at gasoline stations increased 2.1%. Fuel prices rose in May from April, as is the typical springtime pattern, but remained below year-earlier levels, according the U.S. Energy Information Administration.
The retail-sales data are adjusted for seasonal variations but not for price changes.
Retail sales excluding motor vehicles, rose 0.4% from the prior month. Excluding gasoline, sales were up 0.3%. Excluding both categories, sales increased 0.3% last month.
Sales at sporting goods, books and music stores rose 1.3% in May from April, and restaurant and bar sales advanced 0.8%. Clothing-store sales also increased 0.8% but are down from a year earlier.
Sales at general merchandise stores, including department stores, fell 0.3% last month and are down 0.7% from a year earlier.
Write to Eric Morath at eric.morath@wsj.com and Anna Louie Sussman at anna.sussman@wsj.com