Retail sales, drop in jobless claims fuel hope

By Lucia Mutikani
WASHINGTON (Reuters) - U.S. retail sales rose in May for the first time in three months and the number of workers filing new claims for jobless benefits last week hit a January low, fostering hope the recession was abating.
The Commerce Department said on Thursday that sales at U.S. retailers rose 0.5 percent last month, lifted by strong gasoline and building material receipts, after falling by 0.2 percent in April.
A separate report from the Labor Department showed the number of U.S. workers filing new claims for unemployment benefits fell by 24,000 to 601,000 last week, the lowest since the week of January 24.
"The data are less bad. We are on track for growth in the third quarter," said Stephen Gallagher, chief U.S. economist at Societe Generale in New York.
U.S. stocks rose, cheered by the data and a solid auction of longer-dated government bonds, which allayed fears over the country's ballooning budget deficit. The Dow Jones industrial average ended 0.4 percent higher at 8,770.92, after rising as high as 8,877.93.
Treasury debt prices rose strongly, pulling benchmark yields back from eight-month highs above 4 percent, while the U.S. dollar fell broadly as the economy's improving prospects eroded some of the currency's safe-haven appeal.
The data were the latest in a series to bolster the argument that the economy's severe recession was close to hitting a bottom, with the sales report raising optimism that consumer spending would probably be flat to only modestly lower in the second quarter.
But there are worries that higher gasoline prices, which boosted retail sales in May, could hurt the economy. Gasoline prices rose every week in May, according to government data, increasing from $2.13 a gallon at the beginning of the month to $2.57 by June 1.
Excluding sales at gasoline stations, retail sales rose just 0.2 percent, after declining by 0.2 percent in April, the Commerce Department said.
"The (economy's) tender green shoots could be snuffed out by the frost of higher mortgage rates and gasoline prices," said T.J. Marta, chief market strategist at Marta on the Markets in Scotch Plains, New Jersey.
Growing hope that the 18-month-old recession will soon be over and worries about surging U.S. government debt issuance have boosted yields on U.S. Treasuries in recent weeks.
WHITHER THE U.S. CONSUMER
The yield on the 10-year Treasury note, a benchmark for many mortgages, hit 4 percent on Wednesday for the first time since October and revisited that level briefly on Thursday in a potential challenge to the hoped-for economic recovery.
Consumer spending, which accounts for about 70 percent of U.S. economic activity, rose at a 1.5 percent annual rate in the January-March period after a 4.3 percent dive in the fourth quarter of last year.
Consumers, buffeted by lost income from rising unemployment and falling home prices, have largely refrained from splurging and prefer to either save or pay off debt with the extra cash from tax cuts and government transfers. Continued...
Source: Reuters