Retail Sales Surge 1.4 Percent in May

By MARTIN CRUTSINGER
AP Economics Writer

WASHINGTON (AP) - Consumers brushed off rising gasoline prices and slumping home sales to storm the malls in May, pushing retail sales up by the largest amount in 16 months.
The Commerce Department reported that retail sales surged by 1.4 percent last month, compared to April, double the increase that analysts had been expecting. Retail sales had fallen by 0.1 percent in April.

The May strength was widespread with auto dealers, department stores, specialty clothing stores and hardware stores enjoying an especially good month.

Sales would have been strong even without last month's big jump in gasoline prices, which saw prices top $3.20 per gallon. Excluding sales at gasoline stations, overall retail sales would still have been up 1.2 percent.

Meanwhile, the Federal Reserve reported Wednesday that the economy headed into the summer with strong momentum, bolstered by consumer spending and a rebound in manufacturing.

The new Fed survey will serve as the basis for discussion when the Fed next meets to consider interest rates. With the economy showing signs of rebounding, most analysts believe the Fed will leave rates unchanged at the June 27-28 meeting and possibly for the rest of the year.

In a separate report, the Commerce Department said that businesses increased their inventories held on shelves and backlots by 0.4 percent in April, slightly higher than the 0.3 percent gain that Wall Street had expected.

Businesses had drawn down inventories in the first three months of this year, a factor that helped slow the economy's growth to a barely discernible 0.6 percent rate in the January-March period. That was the weakest performance in more than four years. However, inventory rebuilding is expected to help contribute to a rebound in growth in the second quarter.

The strong showing for retail sales caught analysts by surprise. They had been forecasting a more moderate rebound of 0.7 percent.

The increase should ease fears that consumer spending, which accounts for two-thirds of the economy, could falter in coming months under the impact of the surge in gasoline prices, the significant correction in housing and recent increases in interest rates.

The government report painted a more optimistic picture of consumer spending than last week's report from the nation's big chain stores, which reported moderate gains in their survey of same-store sales after a dismal April, a month that had been hurt by bad weather and the fact that Easter came early this year.

The 1.4 percent increase in May sales was the biggest one-month advance since a 3.3 percent surge in January 2006. It left sales at a seasonally adjusted annual rate of $377.9 billion in May.

For May, sales at general merchandise stores, the category that includes department stores, were up 1 percent and sales at department stores rose by 1.3 percent, the best showing in 19 months. Sales at specialty clothing stores jumped 2.7 percent, rebounding from a dismal 1.5 percent drop in April.

Sales of autos and auto parts were up 1.8 percent, the best performance in nearly a year, while sales were up 2.1 percent at hardware stores and 1.8 percent at sporting goods stores.

Sales at gasoline stations rose by 3.8 percent, the biggest increase in more than a year, but much of that gain reflected the big jump in prices. Retail sales are not adjusted for inflation.