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Shoppers open wallets wider

Retail sales up .1%, but many consumers still watch spending

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WASHINGTON — Consumers awoke in May from a shopping slumber and gave a small boost to retail sales, a hopeful sign for the economy's revival.

The Commerce Department reported Thursday that sales at retailers nudged up last month by 0.1 percent from April's total. By comparison, sales fell 0.3 percent from March to April.

"It appears the consumers have begun to bounce back from Iraq-induced doldrums," said Rosalind Wells, chief economist at the National Retail Federation.

Shoppers actually showed a stronger inclination to spend in May than suggested by the 0.1 percent rise.

A 4.3 percent drop in sales at gasoline stations reflected lower pump prices and restrained the overall growth in retail sales. Excluding gas station sales, retail sales climbed a solid 0.4 percent in May, the government said.

Consumers, the main force in keeping the economy going, spent more freely in May, driving up sales of furniture, electronics and appliances, and clothing. People also went out more to eat and drink.

Despite the gains, consumers still are watching their spending and are not leading a much hoped for postwar economic boom.

"Consumers may not be setting records for volume, but they've been buying the economy time to catch its breath," said Bill Cheney, chief economist at John Hancock.

On Wall Street, stocks moved higher. The Dow Jones industrial average gained 13.33 points to close at 9,196.55.

Important factors in consumer spending these days are low mortgage rates, solid home values and a refinancing boom that has left people with extra cash. Rates on benchmark 30-year mortgages fell to a record low of 5.21 percent this week, the mortgage company Freddie Mac reported Thursday.

Those forces are helping to offset the fallout from a sluggish job market. The unemployment rate was at a nine-year high of 6.1 percent in May.

A second government report Thursday said new applications for unemployment benefits last week dropped by a seasonally adjusted 17,000 to 430,000. The Labor Department said that even with the decline, claims have remained above 400,000 — a level associated with a lackluster job market — for 17 straight weeks.

The number of workers who continue to draw jobless benefits rose by 120,000 to a 20-year high of 3.8 million for the work week ending May 31, the most recent period for which that information is available.

The Federal Reserve has kept an important short-term interest rate at a 41-year low of 1.25 percent with the hope of motivating consumers and businesses to spend and invest more. Economists expect the Fed to reduce that rate by at least one-quarter of a percentage point at its meeting June 24-25.

A rate cut and the fresh round of tax cuts signed into law by President Bush last month should energize the economy, analysts said.

Also Thursday, the Commerce Department reported that businesses' inventories of unsold goods nudged up 0.1 percent in April as sales slid 1.5 percent.

While consumers have been doing their part to carry the economy, businesses have not. Businesses have been wary of making big investments in capital spending and in hiring.

In the retail report, sales of automobiles dipped 0.2 percent in May, despite free-financing offers and other generous incentives. That came after a 1.7 percent increase in April.

When both sales of autos and gasoline are removed from the picture, retail sales rose a brisk 0.6 percent in May.

Sales at furniture stores jumped 1.1 percent in May, compared with a 0.5 percent increase the month before. At electronics and appliance stores, sales increased 2.9 percent, up from April's 0.8 percent gain.

Clothing store sales rose 1 percent, compared with a 1.8 percent decline in April. At department stores, sales rose 0.7 percent in May, compared with a 1.2 percent drop the month before.

Sales at bars and restaurants increased 1.4 percent in May, an improvement from April's 0.4 percent drop.