US slump abates as retail sales rise, job-loss rate falls

US RETAIL sales rose for the first time in three months in May and the number of workers filing new claims for jobless benefits last week hit the lowest level since January, suggesting the recession was abating.

The US Commerce Department said yesterday that sales at US retailers rose 0.5 per cent last month, lifted by strong gasoline and building material receipts.

A separate report from the Labor Department showed the number of US workers filing new claims for jobless aid fell 24,000 to 601,000 in the week ended June 6th, the lowest since the week of January 24th.

“It looks like we are turning the corner. There is pretty clear evidence that the worst of the labour downturn has passed, but we still expect more job losses,” said Zach Pandl, an economist at Nomura Securities International in New York.

US stocks were modestly higher, while the value of the dollar edged up against the Japanese yen.

The data bolstered 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.

However, analysts said the sales strength was largely a mirage that reflected higher gasoline prices. Gasoline prices in rose in 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 1st. Excluding sales at gasoline stations, retail sales rose just 0.2 per cent, the Commerce Department said.

“The tender green shoots could be snuffed out by the frost of higher mortgage rates and gasoline prices,” said TJ Marta, chief market strategist at Marta on the Markets in Scotch Plains, New Jersey.

Growing optimism that the deep US recession, now in its 18 month, will soon be over and worries about surging US government debt have pushed yields on US Treasuries sharply higher in recent weeks. The yield on the 10-year Treasury note, a benchmark for many mortgages, hit 4 per cent 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 per cent of US economic activity, rose at a 1.5 per cent annual rate in the January-March period after a 4.3 per cent dive in the fourth quarter of last year. Gasoline sales jumped 3.6 per cent last month after dropping 0.8 per cent in April, while sales of building materials climbed 1.3 per cent, the biggest gain since April last year. Car sales rose 0.5 per cent.

A third report showed businesses continued to pare inventories sharply in April. The Commerce Department said inventories dropped 1.1 per cent, the eighth monthly decline in a row, with stocks of motor vehicles down a sharp 2.4 per cent.

The sharp paring of stocks that had built up as the economy entered a deep tailspin toward the end of last year should lay the groundwork for a pickup in activity as demand revives.

The Commerce Department said on May 29th that inventories fell $91.4 billion in the first quarter after a $25.8 billion drop in final three months of last year.

While initial claims for unemployment benefits declined for the fourth straight week last week, the number of people staying on the benefit rolls after collecting an initial week of aid rose to a record 6.82 million in the week of May 30th. It was the 19th week in a row so-called continued claims set a record. – (Reuters)