Auto Sales Push Retail Sales Past Expectations

Strong spending figures may show consumers are unfazed by Washington's tightening.

(Mario Tama/Getty Images)

The economy grew slightly in the first quarter due to in part to growth in consumer spending, but less than previously thought.

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New government figures show that American consumers are still going shopping, despite a weak recovery and uncertainty in Washington. Retail sales were stronger than expected in May, growing by 0.6 percent from April. That rate of growth beat economists' consensus estimates of 0.5 percent, according to Bloomberg, and is the best reading in three months.

[READ: Consumers Blink, Retail Sales Fall in April]

A vast majority of May's retail sales growth was from auto sales, which grew by 1.8 percent over the month. Spending was also strong on food (up 0.7 percent from April) and building materials (0.9 percent). The figures also reflect a 4.3 percent increase in overall sales since May 2012.

Even excluding auto sales, retail sales grew by 0.3 percent, a figure that is itself encouraging, says Michael Dolega, economist at TD Economics, in a commentary on Thursday's numbers. He adds that the strong retail figures show the recovery to be resilient, in spite of fiscal tightening in Washington.

[PHOTOS: New York International Auto Show 2013]

"Surging house prices, equity markets, and consequently household wealth – which set a new record in the first quarter – have boosted morale," Dolega says. "Coupled with a gradually recovering labor market, consumers continued to spend."

Still, despite the bright spots in May's report, there are still a few reasons for concern in the retail sales numbers. Sales at furniture, clothing, and electronics businesses all fell in May.

"Apart from autos, consumers are staying away from big-ticket purchases and are buying more of what they need rather than what they want," says Leslie Levesque, senior economist at IHS Global Insight.

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Investors have recently kept close watch on every economic indicator for a sign of when the Fed will end its program of monthly asset purchases known as QE3. While a strong retail sales number might support the case for dialing back the stimulus, recent data have been mixed, and low inflation leaves room for yet more money printing, Dolega says.

"We still believe that given little to no inflation in the economy and still-subdued payroll figures, the FOMC will wait until after Labor Day to slow the pace of purchases."

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