By Lucia Mutikani
WASHINGTON (Reuters) - Sales at U.S. retailers unexpectedly rebounded in January, government data showed on Thursday, but the recovery was unlikely to be sustainable as recession-hit companies continued to aggressively axe jobs.
The jump in sales, probably boosted by post-holiday discounts, was at odds with other reports that still painted a gloomy picture for the world's largest economy, which has been mired in recession since December 2007.
"Given all the other contrary information about consumer spending and jobs, this looks to me more like a fluke or an unsustainable recovery. It's a one-month wonder," said Stuart Hoffman, chief economist at PNC Financial Group in Pittsburgh.
The Commerce Department said retail sales rose 1 percent in January, advancing for the first time in seven months, after slumping by a downwardly revised 3 percent in December. November sales were also revised to show a steeper fall.
January's sales gain was the biggest since November 2007 and confounded economists' expectations for a 0.8 percent fall. But compared with January 2008, sales dived 9.7 percent.
Economists said the downward revisions to the November and December figures indicated the government's estimate showing the economy shrank at an annual rate of 3.8 percent in the fourth quarter would be revised to show a deeper contraction.
"We now forecast a decline of 5 percent in the fourth quarter. Price changes probably played an important role in the January rise in retail sales," said Brian Fabbri, North America chief economist at BNP Paribas in New York.
U.S. stocks eked out late gains after falling sharply during the session, following a Reuters report that the Obama administration was working on a program to subsidize mortgage payment for troubled homeowners. The Standard & Poor's 500 Index ended up 1.45 points at 835.19.
Treasury debt prices ceded gains to end mostly flat.
INCOME WORRIES UNDERCUT CONFIDENCE
The Commerce Department retail report showed broad gains across the board, with gasoline sales jumping 2.6 percent, their biggest increase in seven months, after sliding 15.6 percent in December. The sales gain reflected higher prices.
However, sales of building materials fell 3.2 percent after dropping 2.3 percent in December.
"It would be premature to conclude that U.S. consumers are back on the spending wagon. The employment picture continues to dim. These income worries combine with wealth worries to undercut consumer confidence," said Michael Gregory, an economist at BMO Capital Markets in Toronto.
Separately, the Labor Department said the number of people staying on unemployment benefits after drawing an initial week of aid rose by 11,000 to a record 4.810 million in the last week of January.
While initial claims for jobless benefits slipped last week to 623,000 from 631,000 the prior week, economists said the level of new claims and the burgeoning rolls of Americans drawing aid reflected a deepening recession.
"The corporate bloodletting took a while to get started but it is now in full swing and we have no confidence that the peak in claims is near," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
A survey of 71 chief executives conducted by the Business Council found almost 40 percent expected the recession to stretch into 2010.
Escalating job losses and falling household wealth have forced consumers to become more frugal, hitting spending, which accounts for about two-thirds of U.S. economic activity.
This risks exacerbating the economy's downward spiral, which the Obama administration is hoping to break with a $789 billion package of tax cuts and spending moving through Congress.
A report from the Federal Reserve -- the U.S. central bank -- showed household net worth fell more than 20 percent in the past year following the collapse of the housing and stock markets.
With demand slumping, businesses have cut production sharply and have tried to meet sales from existing inventory.
In separate report the Commerce Department said U.S. business inventories fell 1.3 percent in December, the largest drop since October 2001, after slipping 1.1 percent in November.
Like the downward revisions to November and December retail sales, economists said the inventory data buttressed the case that the economy shrank more than initially estimated in the fourth quarter.
(Additional reporting by Mark Felsenthal; Editing by James Dalgleish)
