The 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 as one-time factors that had led to a spike in the prior week reversed. But the level of claims still suggested hiring was softening.
There are still headwinds for the economy stemming from the high gasoline and food prices for the consumer as well as input prices for producers, said Omair Sharif, an economist at RBS in Stamford, Connecticut. Given the high input costs, it looks like firms are scaling back on their hiring plans.
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 Commerce Department said. Economists had expected a 0.6 percent rise.
Excluding gasoline, retail sales rose a tepid 0.2 percent.
The slim rise suggested the economy could struggle to meet economists' expectations for growth of at least a 3 percent annual rate in the second quarter. The economy expanded at a subdued 1.8 percent pace in the January-March period, according to the government's initial estimate last month.
While the tenth straight monthly rise in sales did highlight consumer resilience to lofty food and gasoline prices, households started to trim spending on big-ticket items such as furniture and electronics and appliances.
The Commerce Department's chief economist, Mark Doms, said consumers spent about $8 billion more at gasoline stations in April than they had a year ago. Gasoline prices rose 24 cents, or 6.6 percent, to $3.85 a gallon in April from March.
ENERGY, FOOD RAISE WHOLESALE PRICES
High energy and food costs lifted the prices farms, factories and refineries received in April.
The Labor Department said its producer price index rose 0.8 percent after a 0.7 percent increase in March, a touch above economists' expectations for a 0.6 percent gain.
Excluding food and energy, producer prices rose 0.3 percent for a second straight month, suggesting building inflation and profit pressures.
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 with household budgets stretched by high food and energy prices.
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 April.
Another survey showed U.S. shoppers are making fewer shopping trips, eating out less, and skimping even on groceries to rein in household budgets amid rising gasoline prices.
About a third of Americans surveyed by America's Research Group said they were making fewer trips to stores due to higher gas prices, with about 53 percent of participants also cutting back on small luxuries like sit-down dining.
Stocks on Wall Street rose as commodity prices rebounded, while longer-dated Treasury debt prices fell. The dollar was down against a basket of currencies.
High price increases helped Kraft Foods Inc post better-than-expected first-quarter results, while rising input costs hurt earnings at Gap Inc.
But relief for consumers might be around the corner. U.S. gasoline futures registered their sharpest daily drop since September 2008 on Wednesday and slipped further on Thursday, pointing to a fall in prices at the pump.
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.
A sharp slowing in consumer spending growth put the brakes on the economy in the first quarter, but upward revisions to March sales figures suggested the economy may have moved ahead faster than the 1.8 percent pace estimated by the government.
The potential for an upward revision in first quarter GDP 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 percent.
Details of the retail sales report were generally weak.
Receipts at auto dealerships, clothing and building materials and garden equipment stores rose only modestly, while sales at sporting goods, hobby, book and music stores posted their largest decline since November 2009.
The soft data was at odds with a government report on Friday that showed a 57,100 jump in retail payrolls in April, the most since 2000.
Receipts at gasoline stations, which accounted for about 10.5 percent of overall retail sales in April, rose 2.7 percent. Sales at grocery stores increase 1.5 percent.
(Additional reporting by Doug Palmer; Editing by Neil Stempleman)