Consumer Spending Grows in May

Fed's Beige Book Boosts Stock Market

Retail sales surged unexpectedly in May as consumers overlooked rising gas prices and concerns about economic growth to spend strongly on cars, clothes, electronics and a wide array of goods -- a development that breathed at least temporary life into a moribund U.S. stock market.

New figures from the Commerce Department showed that retail sales increased 1.4 percent on a seasonally adjusted basis compared to the month before, the largest single monthly increase since early 2006.

That report was followed later in the day by a Federal Reserve Board summary of economic information also showing that economic activity continued to expand from mid-April through May.

Consumer spending accounts for about two-thirds of U.S. economic activity, and the expectation that households would tighten their pocketbooks in response to surging gas prices and falling real estate values prompted some forecasters to predict an economic slowdown or even recession.

Wednesday's report should brighten that mood. U.S. stock markets opened strongly after a run of triple-digit losses during the past week and picked up again in the afternoon following the Fed report analysis. By today's close, the Dow Jones industrial average had risen more than 187 points, the tech-heavy Nasdaq was up 32.54, and the broadly based Standard & Poor's 500 had gained 22.67.

The retail sales report showed a wide rebound in consumer spending following a disappointing April in which spending stalled.

Sales at clothing stores in May jumped 2.7 percent compared to April, while sales of building materials and supplies increased more than 2 percent despite a continued downturn in home sales and prices.

Sporting goods stores and auto and parts dealers all posted strong increases as well. As could be expected, gasoline stations posted the strongest increase, with sales rising 3.8 percent.

"However you slice the numbers, this is a much stronger report than seemed likely," particularly in light of recent reports from chain stores that sales were weak, said Ian Shepherdson, chief U.S. economist with the High Frequency Economics consulting firm.

The Fed summary issued today, which detailed reports from the nation's 12 Federal Reserve banks, said consumer spending and retail sales were generally up in late April and May, with a number of districts reporting that luxury items were selling better than lower-end goods. There was little change in auto sales, and travel and tourism remained healthy despite increases in gas prices, which remain a concern for this summer.

Manufacturing was up in most Federal Reserve districts, as were service industries, with the exception of trucking.

"There was continuing weakness in residential real estate and construction but increasing strength in the commercial real estate sector," said the Fed's report, which is known as the Beige Book.

The surge came a day after the stock market plunged on fears related to rising bond yields and inflation worries -- concerns that were eased by news of May's 1.4 percent jump in retail sales. The number was double the increase that analysts had expected.