U.S. retail sales rise strongly, boost economic outlook

May 13, 2016 09:18 AM

U.S. retail sales in April recorded their biggest increase in a year as Americans stepped up purchases of automobiles and a range of other goods, suggesting the economy was regaining momentum after growth almost stalled in the first quarter.

The jump in sales reported by the Commerce Department on Friday is a boost for the sector that has been hit by sluggish demand. It comes days after major retailers, including Macy's and Nordstrom, reported sales tumbled in the first quarter and lowered their full-year profit forecasts.

"The retail sales report shows that recent claims of the demise of the U.S. consumer have been greatly exaggerated," said Steve Murphy, a U.S. economist at Capital Economics in Toronto.

Retail sales surged 1.3% last month, the largest gain since March 2015. March's retail sales were revised up to show a 0.3% decline instead of the previously reported 0.4% drop.

Excluding automobiles, gasoline, building materials and food services, retail sales shot up 0.9% last month after an upwardly revised 0.2% gain in March. 

These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product were previously reported to have gained 0.1% in March.

Economists had forecast retail sales rising 0.8% and core retail sales gaining 0.3% last month.

The dollar rose against the euro and the yen after the data, while prices for U.S. government debt fell. U.S. stock index futures erased losses.

The jump in core retail sales last month could prompt economists to raise their second-quarter GDP growth estimates, which are currently hovering around a 2% annualized rate. 

Economic growth braked to a 0.5% pace in the first three months of the year after expanding at a 1.4% pace in the fourth quarter. 

Retail sales have been sluggish in part because the strengthening labor market has not generated strong wage growth.

Economists also say that some of the savings from cheaper gasoline during the past year-and-a-half have been absorbed by rising rents and medical care costs. 

Macy's, the largest department chain, said this week same-store sales fell 5.6% in the first quarter, and expected full-year sales to decline 3 to 4%. 

Nordstrom reported that sales at stores open at least a year fell 1.7% in the first quarter. It cut its profit forecast for the year to $2.50-$2.70 per share from $3.10-$3.35.

The Commerce Department report showed retail sales in April rose across all categories, with the exception of building materials and garden equipment. Auto sales advanced 3.2%, the largest increase since March 2015, after slumping 3.2% in March. 

Receipts at service stations increased 2.2%, reflecting recent increases in gasoline prices. Sales at clothing stores surged 1.0%, the largest increase since May 2015. 

Online retail sales jumped 2.1%, the biggest gain since June 2014. Receipts at sporting goods and hobby stores rose 0.2% last month. 

Sales at electronics and appliance outlets increased 0.5%. Building materials and garden equipment store receipts, however, fell 1.0% last month, the largest decline since August. Sales at restaurants and bars rose 0.3%.

In a separate report, the Labor Department said its producer price index climbed 0.2% last month after slipping 0.1% in March. In the 12 months through April, the PPI was unchanged after dipping 0.1% in March.

Inflation continues to be restrained by the lingering effects of the dollar's surge and oil price plunge. The greenback gained 20% against the currencies of the United States' trading partners between June 2014 and December 2015. 

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