(Adds manufacturing, inventory data, Powell remarks; updates markets)
* Retail sales increase 17.7% in May
* Core retail sales rise 11%
* Manufacturing output rebounds 3.8%
By Lucia Mutikani
WASHINGTON, June 16 (Reuters) - U.S. retail sales increased by the most on record in May after two straight months of sharp declines as businesses reopened, offering more evidence that the recession triggered by the COVID-19 pandemic was over or drawing to an end.
The report from the Commerce Department on Tuesday followed news early this month that the economy created 2.5 million jobs in May. Layoffs are also ebbing and manufacturing activity is improving, though production remains at very low levels.
The surge in retail sales last month recouped 63% of March and April's decreases. But the journey to recovery could be long and difficult as some parts of the country are experiencing a resurgence of COVID-19 infections. In addition, enhanced federal government unemployment checks will run out in July.
Federal Reserve Chair Jerome Powell told U.S. lawmakers on Tuesday that "until the public is confident that the disease is contained, a full recovery is unlikely."
Retail sales jumped 17.7% last month, the biggest advance since the government started tracking the series in 1992. Sales dropped a record 14.7% in April. Economists polled by Reuters had forecast retail sales would rise 8% in May.
Retail sales fell 6.1% on a year-on-year basis in May. Even with May's surge, sales were still about 8% below their February level, leaving consumer spending and the economy on track for their biggest contraction in the second quarter since the Great Depression. The economy slipped into recession in February.
"The economy and retail sales have hit the bottom in May and we have a V-shaped first stage of recovery," said Sung Won Sohn, a business economics professor at Loyola Marymount University in Los Angeles. "However, it will take quite some time to get back to anywhere near the levels of retail sales and economic activity we enjoyed around the turn of the year."
The reopening last month of nonessential businesses that were shuttered in mid-March to slow the spread of COVID-19 has seen Americans flocking to car dealerships and spending more on gasoline, apparel and at restaurants.
Though nearly 20 million people have lost their jobs to the pandemic, record savings and the government's historic fiscal package of nearly $3 trillion are providing a cushion for consumers through one-time $1,200 checks and generous unemployment benefits. The unprecedented economic upheaval saw personal savings increasing at a record $337 billion in April and the saving rate hitting an all-time high of 33%.