Americans stepped up purchases at retail businesses in May, spending more on cars, home improvements and sporting goods. The gain shows consumers remain resilient despite higher taxes and could drive faster growth later this year.
The Commerce Department said Thursday that retail sales increased 0.6 percent in May from April. That's up from a 0.1 percent gain the previous month and the fastest pace since February.
The April gain was led by a 1.8 percent jump in auto sales, the biggest increase in six months. Excluding volatile autos, gas and building supplies, core retail sales rose 0.3 percent. That's slightly higher than the 0.2 percent April increase.
Sales increased at hardware and general merchandise stores, but fell at furniture and appliance stores.
The retail sales report is the government's first look each month at consumer spending, which drives 70 percent of economic activity.
Paul Dales, senior U.S. economist at Capital Economics, said the May increase in retail spending was stronger than anticipated. Lower gas prices may have helped, he noted.
Even with the gain, he believes consumer spending is slowing from the first quarter's 3.4 percent annual pace, down to around 2.5 percent or less in the current quarter.
"Households may ... be getting over the tax hikes and spending some of the savings from the recent fall in gasoline prices," Dales said.
Steady job growth and rising home prices have helped offset an increase this year in Social Security taxes, which has lowered take-home pay for most Americans.
Consumer spending from January through March grew at the fastest pace in more than two years. That helped the economy expand at a solid annual rate of 2.4 percent. Most economists predict that growth is slowing in the April-June quarter to an annual rate of 2 percent or less. But the gain in retail spending shows the economy may be stronger than some anticipated.
Consumer confidence rose to five-year high in May. And steady gains in home sales and construction are providing support for the economy even as manufacturing weakens.
The gains in home sales and auto sales have been supported by the Federal Reserve's low interest rate policies. The central bank is buying $85 billion per month in bonds to keep downward pressure on long-term rates. Fed policymakers hold a two-day meeting next week that will be closely watched for any signals that the Fed is considering starting to withdraw some of its economic support.
The economy created 175,000 jobs in May, a solid month of hiring but not much stronger than the average increase over the previous 12 months.
Excluding autos, retail sales rose 0.3 percent in May. Sales at hardware stores increased 0.9 percent, and sales at sporting goods and general merchandise stores also increased.
Sales fell 0.8 percent at furniture stores and 0.4 percent at electronics and appliance stores.