Retail sales, economic data boost US stocks

US stocks climbed today as strong April retail sales and a steep drop in oil prices alleviated investors’ worries about a greater-than-forecast jump in labour costs.

The Dow Jones industrial average gained 38.58, or 0.34%, to 11,438.86, its best close since January 2000.

Broader stock indicators were higher. The Standard & Poor’s 500 index rose 4.40, or 0.34%, to 1,312.25, and the Nasdaq composite index surged 19.93, or 0.87%, to close at 2,323.90.

The day’s headlines helped brighten the economic picture, with retailers reporting their best monthly sales in two years as consumers spent freely despite the recent spike in petrol prices. Wall Street also welcomed upbeat earnings from Tyco International.

While the Labour Department said US worker productivity rebounded in the first quarter, a sharp rise in wage costs stoked concerns about inflation as the market continued speculating the potential for more interest rate hikes from the Federal Reserve.

But William Hummer, chief economist for Wayne Hummer Investments, said he was not surprised by the higher labour costs given the pace of economic growth, and noted that the annualised wage inflation rate of 1.4% was relatively tame.

“The economy is resilient, more than most thought, and I think that could very well continue into the second half,” Hummer said. “Headwinds of interest rates and energy costs will diminish the momentum somewhat, but not in a major way.”

Bonds recovered earlier losses and stayed flat, with the yield on the 10-year Treasury note unchanged at 5.15% from Wednesday. The stabilising bond market eased investors' inflation and interest rate jitters and helped the major indexes close in on multiyear highs, said Steven Goldman, chief market strategist for Weeden & Co.

“We still have a great deal of momentum,” Goldman said. “Stocks should continue to edge higher with modest setbacks along the way.”

Traders sold off crude futures for a third day in a row after government data showed a rebound in petrol supplies ahead of the summer driving season. A barrel of light crude lost 2.34 to settle at 69.94 on the New York Mercantile Exchange, where petrol sank 9.1 cents to 1.995 a gallon.

Elsewhere, the dollar was little changed against the Japanese yen, while gold prices surpassed 680 an ounce.

The US Labour Department said worker productivity grew 3.2% for the first three months of the year, beating economists’ estimates of 2.8% and reversing a fourth-quarter decline of 0.3%. However, quarterly wage costs rose 2.5%, down from 3% in the fourth quarter but more than twice the consensus target of 1.2%.

Wall Street also digested an unexpected rise in weekly unemployment claims, although the job market appeared to be in good shape. The department said first-time jobless claims added 7,000 to reach 322,000 last week, above estimates of 310,000.

Strong April sales reports gave retail stocks a boost. Wal-Mart Stores confirmed its sales grew a better-than-expected 6.8% last month, but shares slid 29 cents to 46.40. Gap’s monthly sales slid 3% but topped estimates for a 4.7% drop; Gap added 13 cents to 18.16.

Tyco said its profit grew fivefold last quarter, but the manufacturing conglomerate cut its full-year outlook. Tyco nonetheless rose 98 cents to 27.92.

Eastman Kodak posted its sixth straight quarterly loss and said it is considering the sale of its health-imaging business. Kodak sank 59 cents to 26.76.

Starbucks advanced 1.44 to 38.79 after the coffee chain said profit swelled 27% last quarter and topped estimates by 2 cents per share.

Advancing issues led decliners by 5 to 3 on the New York Stock Exchange, where volume of 1.75 billion shares matched the 1.75 billion shares changing hands at the same point on Wednesday.

The Russell 2000 index of smaller companies rose 6.99, or 0.91%, to 774.72.