By Lucia Mutikani
WASHINGTON (Reuters) - The U.S. economy struggled to gain momentum early in the second quarter, with retail sales posting their smallest rise in nine months in April and wholesale prices increasing more than expected.
Other data on Thursday showed new claims for unemployment benefits fell 44,000 last week to 434,000, but they remained too high to signal a strong labor market recovery.
Retail sales increased 0.5 percent after an upwardly revised 0.9 percent gain in March as receipts at gasoline stations and grocery stores rose strongly, the U.S. Commerce Department said. Economists had expected a 0.6 percent rise.
Excluding gasoline, retail sales rose a tepid 0.2 percent.
It was the tenth straight monthly increase in sales and showed U.S. households exhibiting some resilience to lofty food and gasoline prices, which robbed spending from other areas.
"Consumers have not cut back on how much money they are spending, but they are beginning to cut back on how much stuff they are buying," said Chris Low, chief economist at FTN Financial in New York.
Separately, high energy prices lifted prices paid at the farm and factory gate last month. The producer price index rose 0.8 percent after a 0.7 percent increase in March, the Labor Department said. Economists had expected a 0.6 percent rise.
A Reuters survey published on Thursday showed economists trimmed their 2011 annual average estimate for U.S. economic growth to 2.7 percent from 2.9 percent in a poll in April.
Stocks on Wall Street were down slightly, while longer-dated Treasury debt prices fell ahead of an auction of 30-year bonds. The dollar was down against a basket of currencies.
The retail data implied consumer spending, which accounts for 70 percent of U.S. economic activity, got off to slow start in the second quarter as household budgets remained stretched by high food and energy prices.
GASOLINE PRICES MAY FALL
A recent drop in gasoline futures pointed to a fall in prices at the pump, which could ease the strain on consumers.
U.S. gasoline futures on Wednesday suffered the biggest daily drop since September 2008, with the June contract settling at $3.1228 a gallon, losing 25.69 cents, or 7.6 percent. The futures fell again on Thursday.
In the first three months of 2011, consumer spending grew at a 2.7 percent rate, braking from a 4.0 percent pace in the October-December period, according to the Commerce Department's first estimate of gross domestic product released last month.
But upward revisions to March's figures suggested spending might have been stronger than initially thought.
That was supported by another report on Thursday showing strong increases in business sales and inventories in March. Sales rose 2.2 percent, while inventories were up 1.0 percent.
That rise in inventories also implied first-quarter GDP growth could be raised from the 1.8 percent annual pace reported by the government last month.
"Perhaps the big concern is that spending appears to have lost a lot of momentum at the start of the second quarter," said Paul Dales, a senior U.S. economist at Capital Economics in Toronto.
Economists are hoping the labor market recovery would prove strong enough to boost spending for the remained of the year.
Though first-time applications for unemployment benefits fell last week, they remained above the 400,000 level for a fifth straight week. There are fears that the recent jump in claims could see hiring slowing somewhat in May after employers added 244,000 jobs in April, the largest in 11 months.
On Thursday, President Barack Obama urged businesses to "step up" and hire workers, noting that high gasoline prices were one of the "headwinds" dragging on the economy.
"We've got a lot more work to do to get businesses to invest and to hire," he told the audience in remarks broadcast on Thursday. "It's going to take us several years for us to get back where we need to be.
Gasoline prices rose 24 cents or 6.6 percent to $3.85 a gallon in April from March, according to the Energy Information Administration.
Receipts at gasoline stations, which accounted for about 10.5 percent of overall retail sales in April, rose 2.7 percent after rising 4.1 percent the prior month.
Details of the retail sales report were generally weak, with receipts at auto dealerships, clothing and building materials and garden equipment stores rising modestly.
'Core' retail sales -- which exclude autos, gasoline and building materials -- rose 0.2 percent after a 0.6 percent rise in March.
Core sales correspond most closely with the consumer spending component of the government's gross domestic product report. Receipts at sporting goods, hobby, book and music stores posted their largest decline since November 2009.
(Additional reporting by Doug Palmer: Editing by Andrea Ricci and James Dalgleish)
