Jobless claims fall, but retail sales timid

WASHINGTON (Reuters) - The U.S. economy will struggle to regain speed in the second half of the year, new data on Thursday suggested, as the number of Americans filing for first-time jobless benefits remained high and retail sales barely rose in June.

But a drop in energy costs, which caused wholesale prices to post their biggest fall last month in 1-1/2 years, could boost consumer spending and give the economy much needed impetus after growth faltered early in 2011.

Initial claims for state unemployment benefits fell 22,000 to 405,000 last week, the lowest since mid-April, the Labor Department said. Economists expected claims to drop to 415,000. Still, claims held above the 400,000 level usually associated with a stable labor market.

Economists also cautioned against reading to much into the decline in jobless claims last week, which included the July 4 Independence Day holiday. Claims are volatile around this time of year because automakers normally shut plants for annual retooling.

There were fewer plant shut downs this year, however, after vehicle production was disrupted because of a shortage of parts from Japan in the aftermath of the March earthquake.

"The economy is touch and go. You really need to take the improvement in claims with a grain of salt. It feels like the labor market is moving sideways," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

Retail sales rose 0.1 percent as a rebound in receipts from auto dealers offset the biggest drop in gasoline receipts in a year, a Commerce Department report showed, after dipping 0.1 percent in May.

Economists had expected sales to slip 0.1 percent. Sales excluding gasoline rebounded 0.3 percent after declining 0.2 percent in May.

Federal Reserve Chairman Ben Bernanke on Thursday reiterated the U.S. central bank, which ended a $600 billion government bond-buying program in June, was ready to ease monetary policy further if growth and inflation slowed much more.

Data last week showed employment growth stalled in June, with nonfarm payrolls growing by only 18,000 jobs and the unemployment rate rising to 9.2 percent.

Investors were encouraged by the drop in jobless claims and a higher-than-expected profit from JPMorgan Chase & Co, lifting U.S. stocks and modestly pushing down prices for U.S. government debt.

JPMorgan, the second-largest U.S. bank, made more loans during the quarter than in the first quarter and added staff, signs other banks could be lending more and leading to further growth.

WEAK CONSUMER SPENDING

The U.S. economy has been hurt by high commodity prices and supply chain disruptions from Japan.

The retail sales report suggested that growth in consumer spending in the April-June period would be less than the 2.2 percent annual pace in the first quarter.

Another report from the Commerce Department showed business inventories were starting to pile up because of weak demand. Inventories increased 1 percent in both May and April.

"The picture for June retail spending was definitely weak, though from some perspectives it wasn't terrible," said Michael Feroli, an economist at JPMorgan in New York. "Real consumer spending in the second quarter looks like it only advanced at a paltry 0.6 percent annual rate."

But the drop in gasoline prices from their peak just above $4.00 a gallon in May should help to ease stretched household budgets and support spending in coming months.

The Producer Price Index fell 0.4 percent, the steepest decline since February 2010, the Labor Department said in a second report, after a 0.2 percent rise in May.

Last month, sales at service stations dropped 1.3 percent, the largest decline since June last year, reflecting a 22.5 cent per gallon decline in gasoline at the pump in June.

That decline was mitigated by a 0.8 percent bounce back in motor vehicles receipts, indicating an easing in shortages related to supply chain disruptions from Japan. Motor vehicle sales declined 1.8 percent in May.

Excluding autos, retail sales were flat last month, the weakest reading since last July, after rising 0.2 percent in May. Clothing store receipts rose 0.7 percent last month and sales at building materials and garden equipment suppliers increased 1.3 percent.

Receipts at sporting goods, hobby, book and music stores fell 0.7 percent, however, while sales of electronics and appliances dipped 0.2 percent.

Core retail sales -- excluding autos, gasoline and building materials -- edged up 0.1 percent in June after gaining 0.1 percent the prior month. They correspond closely with the consumer spending component of the government's GDP report.

(Additional reporting by Pedro Nicolaci da Costa; Editing by Padraic Cassidy)

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