Local residents increased their spending during May at the same time that spending on the national level hit its weakest pace in 20 months.
The Commerce Department cited higher gas prices and unemployment as the reasons for weak consumer spending in its Monday report.
According to the data from the Business and Economic Research Center at Middle Tennessee State University May's sales tax collections for the Kingsport-Bristol Metropolitan Statistical Area were up 0.2 percent from April and were 4.7 percent higher than May last year.
May's retail sales data was the third economic item for the month where the local economy outperformed the national economy. Local existing home sales prices and job creation were the other two.
According to Monday's Commerce Department report incomes rose 0.3 percent for the second straight month. But adjusted for inflation, after-tax incomes increased only 0.1 percent in May, after falling by the same amount in the previous month.
Stock futures fell immediately after the report was released. Dow futures plunged 115 points.
Neil Dutta, an economist at Bank of America Merrill Lynch, pointed out that inflation-adjusted, after-tax income is now slightly lower than it was in January.
"It was a very poor report all around," he said. "I think it's clear that higher gasoline prices are taking a bite out of consumer spending."
Consumer spending accounts for 70 percent of economic activity. The spike in gas prices has forced many consumers to cut back on discretionary purchases, such as furniture and vacations, which help boost growth.
Fewer jobs and high unemployment have left workers with little leverage to ask for raises. And slow wage growth hurts the broader economy because consumers have less money to spend. Although Kingsport's labor sector added jobs in May, the number of people on the labor force and those seeking employment also increased so the local employment rate ticked up 0.1 percent from April. May was the fourth straight month of positive new jobs growth for Kingsport's labor sector. According to Bureau of Labor Statistics data the Model City has seen a 3.4 percent growth in jobs since May of 2010. The national jobs growth for the same period was 0.7 percent.
According to the Associated Press, on the national level hiring slowed this spring after a strong start at the beginning of the year. The economy created only 54,000 new jobs in May, the lowest amount in eight months. Kingsport's economy created 18,100 jobs in May - 54 more than the previous month. The national unemployment rate rose to 9.1 percent last month while the Kingsport rate was 8.9 percent.
The economy expanded at an annual rate of 1.9 percent in the January-March period. Many economists believe that growth is only slightly better in the current April-June period.
The report also showed that prices are increasing across many goods and services. A key inflation gauge followed by the Federal Reserve rose 0.2 percent in May, after increasing 0.3 percent or higher in each of the previous five months.
But excluding the volatile food and energy categories, inflation rose 0.3 percent in May, the most since October 2009.
Gas prices have eased since peaking in early May at a national average of nearly $4 per gallon. In the past two months they have dropped to a national average of $3.57 per gallon, according to AAA's daily fuel gauge.
An Associated Press survey of 38 top economists predicts that rate will be about 2.3 percent. Economists are optimistic for the second half of the year, saying growth should pick up to a 3.2 percent pace. They note that two of the biggest factors slowing the economy are abating.
Gas prices are falling. And U.S. factories are expected to begin producing more once Japan's factories resume more normal operations. The March 11 earthquake and tsunami in that country has led to a parts shortage, particularly for auto and electronics manufacturers.
Still, growth must be stronger to significantly lower the unemployment rate. The economy would need to grow 5 percent for a whole year to significantly bring down the unemployment rate. Economic growth of just 3 percent a year would hold the unemployment steady and keep up with population growth.
Americans boosted their savings a bit in May, keeping 5 percent of their after-tax income. That is up from 4.9 percent in April.