WRAPUP 3-U.S. sales, jobs data show underlying economic strength

Thu Jun 13, 2013 1:29pm EDT

* Retail sales rise 0.6 percent in May
    * So-called core sales advance 0.3 percent
    * Weekly jobless claims fall to 334,000
    * Data show economy regaining some strength

    By Lucia Mutikani
    WASHINGTON, June 13 (Reuters) - U.S. retail sales rose more
than expected in May and first-time applications for
unemployment benefits fell last week, signs of economic
resilience in the face of belt-tightening in Washington.
    The data on Thursday suggested rising home prices and steady
job gains, which hoisted consumer confidence to multi-year highs
in May, was starting to create a virtuous cycle in which gains
in spending were forcing employers to keep hiring.
    Policymakers at the Federal Reserve have helped the process
with a muscular easing of monetary policy that pushed mortgage
rates to record lows earlier this year.
    "The economy is showing more evidence of the positive
feedback loop, particularly through the housing channel, but we
still have this push and pull of monetary policy and fiscal
policy," said Robert Dye, chief economist at Comerica in Dallas.
    Retail sales increased 0.6 percent after edging up 0.1
percent in April, the Commerce Department said. Economists had
expected sales to rise 0.4 percent.
    A 1.8 percent surge in motor vehicle purchases last month
helped lift retail sales, which account for about 30 percent of
consumer spending. It was the largest increase in auto sales
since November.    
    A sizable 0.9 percent gain in receipts at stores selling
home-building materials also helped.
    Still, so-called core sales, which strip out automobiles,
gasoline and building materials, and correspond most closely
with the consumer spending component of gross domestic product,
increased 0.3 percent after rising 0.2 percent in April.
    The data helped investors to shift attention away from an
overnight rout in overseas equity markets, giving a lift to U.S.
stocks. The dollar pared steep losses against the yen, while
U.S. Treasury debt prices rose.
    The increase in core sales offered hope consumer spending
would not slow too much in the second quarter, even though it
fell in April for the first time in a year.
    Indeed, some economists bumped up spending forecasts.
JPMorgan now expects consumer spending, which accounts for 70
percent of U.S. economic activity, to grow at a 2 percent annual
pace this quarter, up from a previous forecast of 1.7 percent.
Morgan Stanley raised its spending forecast by two tenths of a
percentage point to a 2.3 percent rate.
    Consumer spending expanded at its fastest pace in two years
in the first quarter, lifting the economy to a 2.4 percent
growth rate.
    
 
    
    STEADY JOB GAINS
    In a separate report, the Labor Department said initial
claims for state unemployment benefits declined 12,000 to a
seasonally adjusted 334,000 last week. 
    The data suggested that the recent pace of steady job gains
continued in early June.
    Taken together, the sales and jobs market data indicated a
pick-up in economic momentum after a slow start to second
quarter that could move the Fed closer to a decision to ratchet
back on the $85 billion in bonds it has been buying each month.
    Still, it was unlikely to convince the central bank to make
any changes at a meeting on Tuesday and Wednesday, particularly
given that the manufacturing sector is struggling.
    "Even though Fed policy is more focused on the labor market,
better aggregate demand news will give some comfort that solid
job gains are sustainable," said Michael Feroli, an economist at
JPMorgan in New York. 
    A second report from the Labor Department showed no sign of
imported inflation, which could keep domestic price pressures
subdued and the Fed cautious about removing stimulus too early.
    Import prices fell in May for a third straight month,
reflecting a weak global demand.