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US retail sales post modest rise in May as consumers spend cautiously

WASHINGTON - U.S. retail sales rose modestly in May as consumers turned cautious in their spending. But the weaker-than-expected result is unlikely to derail overall economic growth in the second quarter.

Retail sales rose 0.3 per cent in May, helped by a jump in demand for autos, the Commerce Department said Thursday. The result follows a 0.5 per cent climb in April, which was revised up from an initial estimate of 0.1 per cent. March sales surged 1.5 per cent — the biggest one-month gain in four years.

Analysts said any disappointment in May was offset by the change in April's figure.

"May retail sales fell short of estimates, although upward revisions to April make it about a wash versus consensus forecasts," said Jay Feldman, director of U.S. Economics Research at Credit Suisse.

Retail sales had fallen sharply in January as winter storms cut into shopping and various other types of economic activity. Economic growth went into reverse in the first quarter, shrinking at an annual rate of 1 per cent. But the revival in consumer spending has led economists to predict a solid rebound to 3 per cent growth or better in the current April-June quarter.

For May, auto sales increased 1.4 per cent. The rise in auto sales had been expected after dealers reported last week that sales in May jumped to a nine-year high, helped by brisk demand for SUVs and pickup trucks. But sectors outside of autos did not fare as well.

Paul Dales, senior U.S. economist at Capital Economics, said that the declines at department stores and appliance stores were hard to understand, given the rapid rise in employment. Households are also feeling wealthier with the strong gains in the stock market and in home prices.

"We expect it won't be long before sales start rising more rapidly," Dales said in a research note. "Overall, the fundamentals suggest that the U.S. economy remains healthy."

Sales at hardware stores and furniture stores increased, but department store sales fell 1.4 per cent. A broader category that includes department stores and big box stores such as Wal-Mart and Target saw sales fall 0.6 per cent.

Sales were also down at specialty clothing stores and electronics stores but posted a solid gain of 0.6 per cent in the category that includes Internet shopping.

Many economists are forecasting that overall economic growth will remain at a solid 3 per cent level in the second half of the year.

Part of the optimism reflects expectations that employers will keep increasing their hiring, with the extra jobs boosting incomes and supporting stronger consumer spending.

The economy added 217,000 jobs in May, the fourth straight month of a gain of more than 200,000. That hasn't happened since 1999. The unemployment rate remained unchanged in May at 6.3 per cent, the lowest in more than five years.

The Canadian Press

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