The U.S. economy will struggle to regain speed this year, 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 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.
Forecasters had seen claims falling to 415,000. Filings held above 400,000, a level associated with a stable labor market.
Economists noted the jobless claims period included the July 4 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.
Retail sales rose 0.1 percent as a rebound at auto dealers offset the biggest drop in gasoline receipts in a year, 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 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 initially encouraged by the drop in jobless claims and a higher-than-expected profit from JPMorgan Chase & Co, but U.S. stock indexes later gave up most gains.
JPMorgan, the second-largest U.S. bank, grew its loan book in the second quarter as demand from mid-size companies increased, suggesting that borrowing is on the upswing and will lead to more growth in the economy.
Economists taking part in a Reuters poll saw a pick-up in growth in the second half of the year although they dialed back their forecasts a notch and raised their forecast for unemployment in 2011 and 2012.
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.
JPMorgan cuts its estimate for U.S. economic growth in the third quarter to 2.5 percent from 3.0 percent.
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.
Outside food and energy, so-called core producer prices climbed 0.3 percent after the prior month's 0.2 percent gain.
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)