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California ... economy gathering steam

Strong US retail sales boost growth outlook

WASHINGTON, June 12, 2015

US retail sales surged in May as households boosted purchases of automobiles and a range of other goods even as they paid a bit more for gasoline, the latest sign economic growth is finally gathering steam.

While other data on Thursday showed a slight increase in new applications for unemployment benefits, the number remained in territory associated with a tightening labor market. The firming economy could likely prompt the Federal Reserve to raise interest rates in September.

"Today's data, including the trend-like jobless claims number, keep September firmly in place as a credible option for the Fed," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.

Retail sales increased 1.2 per cent last month after an upwardly revised 0.2 per cent gain in April, the Commerce Department said. April sales were previously reported to have been unchanged. March sales were also revised to show them rising 1.5 per cent instead of 1.1 per cent.

The dollar strengthened against a basket of currencies on the retail sales data.

US stocks were trading higher, but off their session highs after the International Monetary Fund broke off debt negotiations with Greece, while US government debt rose on safe-haven buying.

The US central bank has kept its short-term interest rate near zero since December 2008. Solid retail sales data added to robust job growth in May and stabilising manufacturing activity in suggesting the economy was finding momentum after getting off to a slow start in the second quarter.

Retail sales excluding automobiles, gasoline, building materials and food services increased 0.7 per cent last month after an upwardly revised 0.1 per cent rise in April.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast core retail sales rising 0.5 per cent after they were previously reported to have been flat in April.

March core retail sales were also revised up to show them increasing 0.9 per cent instead of 0.5 per cent.

GROWTH PICTURE BRIGHTENING

The government's most recent growth estimate showed GDP contracted at a 0.7 per cent annual pace in the first quarter.

But revisions to March core retail sales together with upbeat data on healthcare spending, as well as already-reported revisions to construction spending, trade and wholesale inventory data suggest that output was probably not that weak.

"It is now possible that GDP didn't actually contract in the first quarter," said Paul Ashworth, chief US economist at Capital Economics in Toronto.

Second-quarter GDP growth expectations were also boosted by a second report from the Commerce Department showing retail inventories, excluding autos, in April recorded their biggest increase since November 2013.

Based on the core retail sales and inventory data, Barclays raised its second-quarter GDP estimate by three-tenths of a percentage point to a 3.2 per cent pace.

Goldman Sachs lifted its forecast by three-tenths of a percentage point to a 3.1 per cent rate, while forecasting firm Macroeconomic Advisers now sees growth expanding at a 2.5 per cent rate instead of 2.1 per cent.

Consumer spending is likely to remain fairly strong in the coming months, supported by high savings, rising house prices and a tightening labor market, economists say.

That was reinforced by another report from the Federal Reserve showing household wealth increased $1.6 trillion in the first quarter.

"We expect real consumer spending growth to be stronger in the second half of the year," said Chris Christopher, an economist at IHS Global Insight in Lexington, Massachusetts.

Separately, the Labor Department said initial claims for state unemployment benefits increased 2,000 to a seasonally adjusted 279,000 for the week ended June 6.

It was the 14th straight week that claims held below the 300,000 threshold, which is usually associated with a firming labour market. The government reported last week that 280,000 jobs were created in May, up from 221,000 in April.

Last month, overall retail sales were buoyed by a two per cent jump in receipts at auto dealerships.

Sales at service stations rose 3.7 per cent, reflecting a rise in gasoline prices. There were gains in sales at electronic and appliance, and furniture stores.

Sales at clothing stores surged 1.5 per cent and receipts at online stores climbed 1.4 per cent. Sales of building materials and garden equipment advanced 2.1 per cent.

Americans also spent more money on hobbies and sports, and frequented bars and restaurants. - Reuters




Tags: US | retail | Automobile | Sale | surge |

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