By Lucia Mutikani
WASHINGTON (Reuters) -U.S. retail sales unexpectedly rose in May as consumers bought more motor vehicles and a range of other goods, which could help to support the economy this quarter, though rising layoffs could hamper consumer spending later in the year.
Retail sales increased 0.3% last month after rising 0.4% in April, the Commerce Department said on Thursday. Economists polled by Reuters had forecast sales would slip 0.1%.
Retail sales are mostly goods and are not adjusted for inflation. Food services and drinking places are the only services category in the retail sales report.
“The U.S. economy is holding up relatively well through the second quarter despite some softness,” said Robert Kavcic, a senior economist at BMO Capital Markets in Toronto.
Though inflation and higher interest rates are causing consumers to be more selective and sensitive to prices, spending has remained resilient thanks to strong wage gains resulting from a tight labor market. Some households still have savings accumulated during the COVID-19 pandemic.
Sales at auto dealers increased 1.4% after gaining 0.4% in April. Online retail sales gained 0.3%. Sales at food services and drinking places, the only services category in the retail sales report, rose 0.4%. Economists view dining out as a key indicator of household finances.
Sales at building material and garden equipment supplies dealers jumped 2.2%, likely driven by home renovations.
Furniture store sales rebounded 0.4% while receipts at electronics and appliance stores climbed 0.2%. Spending on hobbies rose 0.3%. Sales at service stations fell 2.6%, reflecting lower gasoline prices.
The Federal Reserve kept interest rates unchanged on Wednesday for the first time since March 2022, when the U.S. central bank embarked on its fastest monetary policy tightening campaign in more than 40 years.
But the Fed, which has hiked its policy rate by 500 basis points in this tightening cycle, still anticipated rate increases later this year. Fed Chair Jerome Powell told reporters that the labor market had surprised many “with its extraordinary resilience,” adding that it was “really the engine, it seems, that is driving the economy.”
U.S. stocks were mostly higher in early trading. The dollar slipped against a basket of currencies. U.S. Treasury prices rose.
UNDERLYING STRENGTH
Excluding automobiles, gasoline, building materials and food services, retail sales gained 0.2% last month. Data for April was revised slightly lower to show these so-called core retail sales rising 0.6% instead of the previously reported 0.7%.
Core retail sales correspond most closely with the consumer spending component of gross domestic product.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at its fastest pace in nearly two years in the first quarter, offsetting the drag on GDP growth from a sharp inventory slowdown. The economy grew at a 1.3% annualized rate last quarter. The Atlanta Fed is currently estimating GDP will rise at a 2.2% pace in the second quarter.
Though largely resilient, the labor market is fraying at the margins. A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits were unchanged at a seasonally adjusted 262,0000 for the week ended June 10.
Economists polled by Reuters had forecast 249,000 claims for the latest week. Some of the elevated reading in claims, which kept them at levels last seen in October 2021, was because of recent policy changes in Minnesota that made non-instructional educational staff eligible for state unemployment benefits during the summer break.
Aside from the policy change, layoffs are rising. Unadjusted claims jumped 28,763 to 249,212 last week. Claims in Minnesota rose by 3,664, while filings in Texas jumped by 7,123.
There were also notable increases in applications in California, Georgia, Florida, Illinois, Indiana and New York.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 20,000 to 1.775 million during the week ending June 3, the claims report showed.
The so-called continuing claims remain low by historical standards as some laid-off workers could be finding work easily, with 1.8 job openings for every unemployed person in April.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)
