By Lucia Mutikani
WASHINGTON (Reuters) - Sales at U.S. retailers posted their largest gain in five months in August on strong receipts at gasoline stations and clothing outlets, further assuaging fears of a double-dip recession.
The Commerce Department said on Tuesday total retail sales rose 0.4 percent, adding to data such as private payrolls and manufacturing for August that have pointed to a tentative improvement in the economy after a recent soft patch.
"Expectations were that the economy and consumer were really running out of gas, so to see this type of data, given that expectations were beginning to come down, is significant," said Lawrence Glazer, a managing partner at Mayflower Advisors in Boston.
The increase in retail sales, which are a measure of consumer health, was the second monthly gain in a row and was a touch above market expectations for 0.3 percent rise. Sales rose 0.3 percent in July.
In a second report, the department said business inventories increased 1.0 percent in July, the largest since July 2008 and double market expectations for a 0.5 percent rise as sales rebounded strongly.
Stocks on Wall Street traded lower as investors locked in recent gains, but retailer's stocks helped limit losses. The S&P retail index <.RLX> rose 0.7 percent with JC Penney Co Inc
LITTLE POLITICAL MILEAGE
Although the reports offered more confirmation the economy was not slipping back into recession, they will do little to improve the Democratic Party's chances of retaining control of Congress less than two months away from November's mid-term election.
Democrats are bracing for a backlash from voters unhappy with a 9.6 percent unemployment rate in the November 2 vote.
Polls suggest Republicans could take the House of Representatives and perhaps even the Senate, which would put them in position to shape any new initiatives to boost the economy.
The Senate on Tuesday was set to take up consideration of a small business lending bill backed by President Barack Obama as lawmakers continued to wrangle over whether to extend expiring tax cuts for upper-income Americans.
The recovery from the worst recession since the 1930s has cooled off as the boost from an $814 billion government stimulus package fades and unemployment remains stubbornly high, but the retail sales and inventory data indicated the economy continued to expand.
Sales last month were boosted by back-to-school buying and some discounting, even though motor vehicle and parts receipts fell 0.7 percent after increasing 1.0 percent in July.
Excluding autos, sales increased by a bigger-than-expected 0.6 percent in August, also the largest increase since March, after a 0.1 percent gain the prior month. Markets had expected sales excluding autos to increase 0.3 percent in August.
"It suggests American consumers remain resilient despite the backdrop of high unemployment and declining home values. On the margin, this data reduces some concerns about a double-dip recession," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
Cautious optimism over the health of consumer was also reflected by Best Buy
Last month, receipts at gasoline stations increased 1.9 percent after rising 2.2 percent in July. Building materials and garden equipment sales were unchanged after falling 0.4 percent in July, suggesting some stability after sharp declines following the end in April of a popular homebuyer tax credit.
Clothing and clothing accessories sales increased 1.2 percent. Core retail sales, which exclude autos, gasoline and building materials, rose 0.5 percent after dipping 0.1 percent in July.
Core sales correspond most closely with the consumer spending component of the government's gross domestic product report.
Inventories contributed hugely to economic growth during the early part of the recovery, but the boost faded in the second quarter of this year.
However, if the trend in July is sustained, inventories could make a significant contribution to gross domestic product growth in the third quarter.
(Reporting by Lucia Mutikani; Additional reporting by Vivianne Rodrigues in New York; Editing by Andrea Ricci)
