Retail Sales Post 1.3 Percent Gain as Consumer Confidence Soars

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By Anita Balakrishnan, CNBC

Retail sales in April recorded their biggest increase in a year as Americans stepped up purchases of automobiles and a range of other goods, suggesting the economy was regaining momentum after growth almost stalled in the first quarter.

The Commerce Department said on Friday retail sales jumped 1.3 percent last month, the largest gain since March 2015. March's retail sales were revised up to show a 0.3 percent decline instead of the previously reported 0.4 percent drop.

Excluding automobiles, gasoline, building materials and food services, retail sales shot up 0.9 percent last month after an upwardly revised 0.2 percent gain in March.

Consumers were feeling more optimistic this month: The Index of Consumer Sentiment hit 95.8 in May, the University of Michigan said Friday, its highest level since June 2015. Economists expected the index to hit 90 for May, up slightly from 89 in April.

The monthly survey of 500 consumers measures attitudes toward topics like personal finances, inflation, unemployment, government policies and interest rates. The index of consumer expectations hit 87.5 in the preliminary report, up from 77.6 in April. The index of current economic conditions hit 108.6, up from 106.7 in April's final reading.

Friday's results showed that uncertainty about November's elections was offset by an improved jobs outlook and expectations of lower inflation and interest rates, especially among lower income and younger households, said Richard Curtin, a chief economist of the survey.

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"To be sure, the data still indicated the negative impact of uncertainty about future economic policies associated with the Presidential election, but its overall impact was overwhelmed by favorable economic developments," Curtin said in a statement.

The news came as major retailers saw their stocks slide amid weak traffic and earnings reminiscent of the last recession. But Friday's report allayed fears that there was a collapse in consumer spending, wrote Chris Rupkey, chief financial economist at MUFG Union Bank.

"It looks like the economy is going to be okay after all this year," Rupkey wrote in a research note. "The economy is on track for further gains and this means the Fed can take their foot off the gas a little further and move rates up another notch at their meeting in June. Taking your foot off the gas does not mean the economy will slow down. Once again, things are better than you think. Way better."

— CNBC's Krystina Gustafson and Reuters contributed to this report.