Economic Report: U.S. retail sales jump 0.8% in May, point to strong second-quarter GDP

Sales at U.S. retailers have picked up in the spring, reflecting stronger growth in the economy after a slow start in 2018.

The numbers: Sales at retail stores surged in May, but the increase was a double-edged sword. Americans are spending more because of a strong economy, but rising inflation also means they have to pay more for gas and other staples.

Retail sales nationwide jumped by 0.8% last month, twice as high as the MarketWatch forecast. Sales growth in April and March were also revised up sharply, partly reflecting changes in how the government calculates the numbers.

Retail sales have risen a solid 5.9% over the past 12 months, the government said Thursday. Sales are rising at a more than 5% yearly pace even if gas is excluded.

What happened: Sales at gas-stations rose sharply in May, reflecting higher prices at the pump. Home centers also saw a big boost in sales, as is typically the case in the spring.

Restaurants and clothing stores posted strong sales, and in a bit of a surprise, traditional brick-and-mortar department stores easily outpaced their Internet rivals.

Auto sales also rose 0.5% even the industry reported lower sales figures. The auto sector generates about one-fifth of all retail spending.

Sales fell at stores that sell sporting goods, books, music and home furnishings.

Retail sales in April, meanwhile, were raised to show a 0.4% gain from an initial 0.2% reading. Sales in March grew 0.7% instead of being unchanged.

Big picture: Tax cuts, a steadily growing economy and the best labor market in decades are giving Americans the means to spend more.

The near future does look a bit more uncertain, however.

Higher gas prices and rising inflation are taking a bite out of household finances. The Federal Reserve is also raising interest rates, making it more costly to buy a home, get a new car or take out a loan.

Still, most economists predict the current U.S. expansion that just turned nine years old remains on track to break the modern record. It would be the longest expansion ever if it lasts another year.

What they’re saying: “U.S. households are back to their free spending ways, with the strength of May’s retail sales figures implying that second-quarter real consumption growth (and GDP growth for that matter) will now be more than 4% annualized. With the benefit of the tax cuts, strong employment growth and a slow acceleration in hourly wage growth, consumption growth should remain strong going into the second half of this year,” said Paul Ashworth, chief U.S. economist at Capital Economics.

Market reaction: The Dow Jones Industrial Average DJIA, -0.47% and the S&P 500 SPX, -0.40% were set to open slightly higher in Thursday trades. The 10-year Treasury yield TMUBMUSD10Y, -0.99%   fell slightly to 2.95%.

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