Sales at US retailers rose a much stronger-than-expected 1 per cent in May as many consumers had more spending cash in their wallets from government tax rebate checks, a report today showed.
The increase in retail sales reported by the Commerce Department was twice as much as expected by Wall Street economists but was seen as only temporary.
Higher petrol prices gave a lift to service station sales, but even with those stripped out, retail sales rose a strong 0.8 per cent, the biggest increase in a year.
But conditions in the labor market are deteriorating. A separate Labor Department report showed more workers than expected signed up for unemployment aid last week.
US government debt prices fell on the sales data after it raised expectations the Federal Reserve will raise its benchmark interest rate by at least a half percentage point by the end of the year.
US stock index futures and the dollar extended gains after the strong retail sales data.
Economists were expecting a boost in spending during the month because a large portion of government rebate checks, which are a key part of the president's economic stimulus package, have been distributed.
Excluding vehicles, sales rose 1.2 per cent, the biggest rise in six months and well beyond the 0.7 per cent rise economists were expecting.
Taking out vehicles, building materials and petrol, sales rose a steady 0.8 per cent during the month.
New applications for state jobless benefits jumped to 384,000 last week from a revised 359,000 for the prior week, the Labor Department said.
The four-week average of new jobless claims, which is considered a better gauge of employment trends because it irons out weekly volatility, climbed to 371,500 from 369,000 the prior week.
In a sign higher oil prices are adding some inflationary pressures to the US economy, import prices rose 2.3 per cent in May as expected, capping the biggest three-month increase in more than 17 years, another Labor Department report showed.
The 7.9 per cent three-month rise in import prices was the largest since October 1990.