Stimulus gives a lift to consumers

May retail sales report shows 1% overall gain, twice what economists expected.

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By Kenneth Musante, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Retail sales rose more than expected in May, the first full month of payments aimed at stimulating the economy, according to a government report released Thursday.

The Commerce Department reported that total retail sales grew 1% last month, compared to a revised 0.4% gain in April. A consensus of analysts polled by Briefing.com expected sales to rise by 0.5%.

Stripping out volatile auto sales, retail sales rose 1.2% in May, well above the 0.7% increase expected by analysts and the upwardly revised 1% gain posted in April.

"I think a lot of people who forecasted didn't take into account the rebate effect," said Michelle Meyer, economist with Lehman Brothers.

In May, the government began mailing out the bulk of its economic stimulus checks - $600 per person and $300 per child for families. More than $57 billion has been distributed so far, according to Treasury Department figures.

The forecast from Lehman was closer to the mark than the consensus estimate, but what surprised Meyer was the upward revision of April's numbers.

Last month, the Commerce Department reported a 0.2% decline in retail sales for April as opposed to the revised gain. "It suggests stronger consumption in the second quarter," said Meyer.

Consumer spending shows no sign of collapsing, she said, but cautioned that economic growth could remain slow. "Looking past the rebate effect, there are still many strains on the consumer," she said.

May's increase was led by a 2.6% increase in sales at gasoline stations, which are also up 13.8% when compared to a year earlier. Building material sales also rose 2.4% for the month.

The increase in gas station sales may be driven purely by price, according to John McHugh, spokesman for Kwik Trip, Inc., which operates more than 350 gasoline stations and convenience stores in Iowa, Minnesota and Wisconsin.

"Sales dollars are up, but that's just because the price of gas is up," said McHugh.

Gasoline was selling in the high $3-a-gallon range during May. The national average crossed the $4-a-gallon mark last Sunday, according to a daily survey from automobile group AAA.

When measured by the gallon, gas sales for the chain have been relatively flat, said McHugh. He did say the company expected to see a small spike in sales from the stimulus checks, but added that cash sales are becoming rarer as people rely more on their credit cards. To top of page

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