US Data Point To Strong Domestic Demand, Stirring Inflation

US Data Point To Strong Domestic Demand, Stirring Inflation
Washington: US retail sales rose more than expected in May as Americans bought automobiles and a range of other goods, even as they paid more for gasoline, suggesting that economic growth was gaining steam despite a sharp slowdown in job creation.

Other data on Tuesday hinted at a steady build-up of inflation pressures, with import prices recording their largest increase in just over four years in May as the drag from a strong dollar and lower oil prices fades.

The signs of fairly healthy domestic demand and rising imported inflation could attract the attention of officials at the Federal Reserve, who were due to gather for two-day meeting on Tuesday. While May's weak employment report has all but ruled out an interest rate increase at this meeting, the steady flow of upbeat economic reports keeps a hike in July on the table.

"This won't spur the Fed to raise interest rates tomorrow, but it could cast a more positive tone on the statement... setting the stage for an increase in July," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

The Commerce Department said retail sales increased 0.5 per cent last month after surging by an unrevised 1.3 per cent in April. The second straight month of gains boosted sales 2.5 per cent from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales rose a solid 0.4 per cent last month after an upwardly revised 1.0 per cent increase in April.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have risen 0.9 per cent in April. Economists had forecast both overall retail and core sales gaining 0.3 per cent last month.

The dollar pared losses against the yen and extended gains versus the euro on the data.

Boost to second quarter growth

The fairly strong May retail sales report could see economists lifting their second-quarter GDP growth estimates, which are currently around a 2.5 per cent annualized rate. The economy grew at a 0.8 per cent rate in the first quarter.

Tepid employment gains in May stirred concerns about the health of the economy. But so far, data on first-time applications for unemployment benefits suggests labor market strength remains intact.

In May, auto sales rose 0.5 per cent after racing 3.1 per cent in April. Receipts at service stations increased 2.1 per cent, reflecting recent increases in gasoline prices.

Sales at clothing retailers increased 0.8 per cent, the largest gain since November. Online retail sales shot up 1.3 per cent. Receipts at sporting goods and hobby stores jumped 1.3 per cent last month.

Americans also ate out, boosting sales at restaurants and bars 0.8 per cent. They also bought electronics and appliances.

But sales at building materials and garden equipment stores fell 1.8 per cent after declining 2.0 per cent in April. Furniture store sales dipped 0.1 per cent.

In a separate report, the Labor Department said import prices increased 1.4 per cent last month, the largest rise since March 2012, after advancing 0.7 per cent in April. In the 12 months through May, import prices fell 5.0 per cent, the smallest decline since November 2014. The dollar's surge and a plunge in oil prices between June 2014 and December 2015 had dampened inflation. But with the dollar weakening 1.5 per cent against the currencies of the United States' main trading partners this year and oil prices near $50 per barrel, that drag is starting to lift.

Export prices jumped 1.1 per cent in May, the biggest gain since March 2011, after rising 0.5 per cent in April. Export prices fell 4.5 per cent from a year ago, the smallest drop since December 2014.
© Thomson Reuters 2016

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