Jun 13, 2007

Retail sales, import prices surgeBy David LawderCanada.com

Washington (Reuters) – Retail sales rose more than twice as much as expected in May, while import prices surged, adding to recent data suggesting the U.S. economy is recovering strongly after a slowdown in the first quarter.

Sales by U.S. retailers rose 1.4 percent in May as consumers shrugged off higher gasoline prices and increased their spending on cars, clothing and building materials, a Commerce Department report showed.

Import prices, which are monitored closely by Federal Reserve policy-makers as a potential source of inflation, rose for the fourth straight month on higher petroleum costs.

The dollar initially rallied and U.S. Treasury bond prices fell, as the data helped further cement a view that the Federal Reserve is unlikely to cut interest rates this year and may even raise them at some point to help cool inflation.

“The economy is coming back stronger than anybody could imagine,” said Mark Vitner, economist at Wachovia Securities in Charlotte, North Carolina. “We were probably one of the most optimistic groups on the street, and the economy is surpassing even our expectations.”

The increase in retail sales was the biggest since January 2006 and was far stronger than the 0.6 percent increase predicted by Wall Street economists in a Reuters poll. April sales were revised to a 0.1 percent fall from a 0.2 percent decline.

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