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Retail stumbles, but consumers still spending: How it breaks down

Shoppers carry bags while walking through the Cherry Creek Shopping Center in Denver.
Matthew Staver | Bloomberg | Getty Images
Shoppers carry bags while walking through the Cherry Creek Shopping Center in Denver.

Never underestimate the spending power of the American consumer.

Amid reports of disappointing sales this week from major U.S. store chains like Macy's and Nordstrom, government data Friday showed that retail sales posted the biggest jump in a year

"The retail sales report shows that recent claims of the demise of the U.S. consumer have been greatly exaggerated," said Steve Murphy, a U.S. economist at Capital Economics.

The news also lifted hopes that the U.S. economy has regained momentum after all but stalling out in the first three months of the year. Earlier this month, the government reported that gross domestic product inched ahead in the first quarter at an annual rate of just a half percent

Retail sales surged 1.3 percent last month after dropping 0.3 percent in March. Economists pointed to a strong showing among so-called core retail sales, which exclude automobiles, gasoline, building materials and food services.

That segment, which tracks the overall consumer spending component of gross domestic product, rose by 0.9 percent in April. Consumer spending makes up some two-thirds of GDP, so the spending surge bodes well for the economy's overall performance this spring.

The overall spending gains weren't felt by all retailers, though. Earlier this week, several major companies, including Macy's and Nordstrom, said that sales tumbled in their first quarters and they slashed their forecasts for the rest of the year.

Macy's, the largest U.S. department store chain, said its same-store sales fell 5.6 percent in the first quarter, and expected full-year sales to decline 3 to 4 percent. Nordstrom said sales at stores open at least a year fell 1.7 percent in the first quarter.

Those forecasts likely reflect the product mix of those chains rather than an overall slump in consumer spending, according to Jim O'Sullivan, an economist at High frequency Economics.

While the general merchandise category in the government data has been weak, other sectors are showing strong growth, including "nonstore retailers" that include online merchants like Amazon.

That means that Macy's sales stumble isn't a good bellwether for overall consumer spending.

"Macy's officials have been highlighting their company's vulnerability to reduced spending by tourists due to the rise in the dollar, although Commerce Department data are not showing any significant weakness in total spending by foreign visitors," he wrote in a note to clients.

Consumers, in fact, seem to be in the mood to keep spending.

A separate report Friday showed that consumer sentiment is rising among all income and age groups, with big gains among lower-income and younger households. The monthly report from the University of Michigan showed that its consumer sentiment index jumped 6.8 points, a big increase, to 95.8 early this month. That's the highest reading in almost a year.

The increased spending may be due, in part, to a recent uptick in wage growth. Though consumers' paychecks have barely kept up with inflation, the steady pace of hiring in the last several years may also be boosting consumer confidence and helping to put them in a spending mood.

Consumers have also seen a windfall as the plunge in oil prices has produced savings at the gas pump. Though fuel prices have inched higher again, they remain well below levels over the last decade. Some economists, though, believe that the impact from those savings may have been muted by rising housing and medical costs.

Still, the latest data suggest that American consumers are back in a spending mood that will keep the U.S. economy growing.

"The good news for U.S. households continues," said Chris Christopher, head of consumer economics at IHS Global Insight, "including strong employment and income gains, low interest rates and oil prices, and strong finances."