Sales at U.S. retailers rose a much stronger-than-expected 1 percent in May as many consumers had more spending cash in their wallets from government tax rebate checks, a report Thursday showed.
The increase in retail sales reported by the Commerce Department was twice as much as expected by Wall Street economists but was seen as only temporary.
Higher gasoline prices gave a lift to service station sales, but even with those stripped out, retail sales rose a strong 0.8 percent, the biggest increase in a year.
But conditions in the labor market are deteriorating.
A separate Labor Department report showed more workers than expected signed up for unemployment aid last week.
U.S. government debt prices fell on the sales data after it raised expectations the Federal Reserve will raise its benchmark interest rate by at least a half percentage point by the end of the year.
U.S. stocks rallied and the dollar extended gains after the strong retail sales data.
Economists were expecting a boost in spending during the month because a large portion of government rebate checks, which are a key part of the president's economic stimulus package, have been distributed.
"In our view, the tax rebates are temporarily boosting sales," said Ian Shepherdson, chief economist at High Frequency Economics in Valhalla, New York.
Excluding autos, sales rose 1.2 percent, the biggest rise in six months and well beyond the 0.7 percent rise economists were expecting.
Taking out autos, building materials and gasoline, sales rose a steady 0.8 percent during the month.
Jobless Claims Rise
New applications for state jobless benefits jumped to 384,000 last week from a revised 359,000 for the prior week, the Labor Department said.
Analysts polled by Reuters were expecting a much smaller rise.
The four-week average of new jobless claims, which is considered a better gauge of employment trends because it irons out weekly volatility, climbed to 371,500 from 369,000 the prior week.
In a sign higher oil prices are adding some inflationary pressures to the U.S. economy, import prices rose 2.3 percent in May as expected, capping the biggest three-month increase in more than 17 years, another Labor Department report showed.
The 7.9 percent three-month rise in import prices was the largest since October 1990.