US 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 US consumer have been greatly exaggerated," said Steve Murphy, a US economist at Capital Economics in Toronto.
Retail sales surged 1.3 percent last month, the largest gain since March 2015, after dropping 0.3 percent in March. Excluding automobiles, gasoline, building materials and food services, retail sales shot up 0.9 percent last month after an upwardly revised 0.2 percent gain in March. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have gained 0.1 percent in March. Economists had forecast retail sales rising 0.8 percent and core retail sales gaining 0.3 percent last month.
Signs of an acceleration in consumer spending keep an interest rate hike from the Federal Reserve next month on the table. Consumer spending prospects got a boost from a separate report showing sentiment among households jumped to an 11-month high in early May. The University of Michigan said its consumer sentiment index surged 6.8 points to 95.8 early this month, the highest reading since June. Sentiment increased among all income and age groups, with big gains among lower-income and younger households.
Last month's strong core retail sales increase could prompt economists to raise their second-quarter GDP, currently hovering around a 2 percent annualised rate. Economic growth braked to a 0.5 percent pace in the first three months of the year after expanding at a 1.4 percent pace in the fourth quarter. But another report from the Commerce Department on Friday showing a 0.4 percent increase in business inventories in March suggest growth was much higher than initially estimated.
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 over 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 percent in the first quarter, and expected full-year sales to decline 3-4 percent.
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