WRAPUP 6-US retail sales slump, but consumer mood perks up

* Retail sales post first decline since September

* Sales ex-autos fall largest in 14 months

* Consumer sentiment strongest since January 2008

* Business inventories hit 10-month high
(Updates markets to close)

By Lucia Mutikani

WASHINGTON, June 11 (BestGrowthStock) – Sales at U.S. retailers
unexpectedly fell in May for the first time in eight months,
but a jump in consumer sentiment to a near 2-1/2 year high in
early June tempered fears of a slowing economic recovery.

The drop in sales reported by the Commerce Department on
Friday reflected weak gasoline prices and the end of a home
buyer tax credit that had boosted sales of building materials.

Analysts said the underlying trend of steadily advancing
consumer spending was intact — despite some recent data that
suggested a slowing of the recovery — and there was little
risk of the economy slipping back into recession.

“We have placed a double-dip in the U.S. for a long time at
15 percent and that is still where we are. The most likely
scenario is the economy continues to grow at a 3-percent pace,”
said Michael Strauss, chief economist at Commonfund in Wilton,
Connecticut.

Total retail sales dropped 1.2 percent in May after rising
0.6 percent in April. Economists had forecast a May rise of 0.2
percent.

Receipts from building materials suppliers tumbled a record
9.3 percent in May after the expiration of incentives to boost
the sale of energy-efficient appliances.

Gasoline prices, which normally rise in May, fell and
weighed on the dollar value of sales.

Core retail sales, which correspond most closely with the
consumer spending component of the government’s gross domestic
product report, rose 0.1 percent after dropping 0.2 percent in
April.

“The details for consumption are consistent with a still
solid pace, with real consumer spending still on track for
around a 3 percent rate of growth in the second quarter, down
only modestly from 3.5 percent in the first quarter,” said Jim
O’Sullivan, chief economist at MF Global in New York.

CONSUMERS MORE UPBEAT

A surprise pull-back in private business hiring last month
put consumer spending under the spotlight and fanned fears the
economy’s recovery from the longest and deepest recession since
the 1930s was stalling.

Consumers, however, are becoming a bit more optimistic
despite the recent plunge in share prices.

The Thomson Reuters/University of Michigan’s Surveys of
Consumers sentiment index rose to 75.5 early this month from
73.6 in May. That was above expectations for 74.5.

“This reinforces the view that what moved sales in May was
the unwinding of incentives to buy energy-efficient appliances,
and other issues like weather, the price of gas, and so forth,”
said Nigel Gault, chief U.S. economist at IHS Global Insight in
Lexington, Massachusetts.

“If consumers were getting panicked, you’d have expected to
see more worry showing up here.”

Stocks on Wall Street initially fell as investors worried
weak retail sales could hurt corporate profits, but reversed
course after an upbeat revenue forecast from National
Semiconductor Corp (NSM.N: ) signaled a bounce back in demand for
the microchip industry.

All key U.S. stock indexes ended up for a second straight
day. Prices for U.S. government debt rose on the retail sales
report, but the dollar firmed against the euro and yen as
investors in that asset class focused instead on the
improvement in consumer sentiment.

Restoring the economy to health is a key priority for
President Barack Obama, and voter anguish over the slow pace of
the recovery could inflict heavy losses on the Democratic Party
in November’s Congressional elections.

Consumer spending accounts for about 70 percent of U.S.
economic activity, but with the unemployment rate near 10
percent, households have become more cautious than in previous
recoveries.

The Federal Reserve, which has cut benchmark interest rates
to near zero to revive the economy, is widely expected
reiterate its pledge for ultra-low borrowing costs for an
“extended period” when it meets later this month.

Chairman Ben Bernanke this week said the economic recovery
was on a solid footing, but he remained concerned about jobs.

Last month, motor vehicle and parts receipts fell 1.7
percent, although dealers reported a rise in sales volumes.

Excluding autos, sales fell 1.1 percent in May, the largest
decline in 14 months, after rising 0.6 percent in April.

There were some bright spots, with sales at sporting goods,
hobby and book stores rising 0.4 percent in May after falling
1.3 percent in April. Receipts at electronics and appliance
stores rose 0.6 percent, reversing the prior month’s fall.

In another report, the Commerce Department said business
inventories hit a 10-month high in April, while sales were at
their highest level since October 2008.

Inventories are a key component of gross domestic product
changes over the business cycle and the rebuilding of
merchandise stock from record low levels is one of the key
drivers of the economy’s recovery.

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U.S. retail sales graphic: http://link.reuters.com/beq59k

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Stock Market Today

(Additional reporting by Richard Leong; Editing by Chizu
Nomiyama and Padraic Cassidy)

WRAPUP 6-US retail sales slump, but consumer mood perks up