U.S. Retail Sales Rise; Trade Gap at Record

Strong consumer demand and high gasoline prices pushed U.S. retail sales higher in May and helped propel the U.S. trade deficit to a record in April, a pair of government reports said Monday.

Retail sales rose a greater-than-expected 1.2% in May to a seasonally adjusted $335.8 billion.

Consumers took advantage of incentives from U.S. automakers, flocked to stores to update their wardrobes, and stocked up on health and beauty supplies and other merchandise.

Gasoline sales rose 4%, the biggest gain since February 2003, aided by record-high gasoline prices that have failed so far to damp overall consumer demand.

“Clearly, the consumers are buying everything that isn’t nailed down,” said Chris Rupkey, senior financial economist at Bank of Tokyo Mitsubishi in New York.

In a separate report, the Commerce Department said the U.S. trade deficit widened unexpectedly in April to $48.3 billion.

The bright retail picture was tempered by a drop in furniture and home-furnishing sales and a larger decline in purchases of building materials and garden equipment.

In addition, the 2.7% jump in auto and auto-part sales was due chiefly to beefed-up rebates and promotions from automakers in May, analysts said.

Strong consumer demand was reflected in April’s trade gap, which included a jump in the politically charged trade deficit with China. That, together with the highest oil prices in 21 years, pushed imports to a record $142.3 billion.

Exports fell from the record set in March, but were still the second-highest ever at $93.9 billion.

The trade deficit with China jumped nearly 15% in April to $12 billion, as imports from that country surged to their highest level in six months and exports declined nearly 20%.

Sung Won Sohn, chief economist at Wells Fargo in Minneapolis, said that the huge and growing trade deficit remains the “Achilles’ heel of the U.S. economy.”

If not for the gap, U.S. economic growth in the second quarter would probably top 5%, instead of being in an estimated 4.5%, Sohn said.

But on the whole, the retail sale and trade reports show the economy “is doing very well,” he said.

“I think now we have both engines -- consumer spending and business spending -- really powering together, pulling the economy upward and forward,” Sohn said.