Retail sales rebounded in July but showed hints of lingering economic softness, as did inflation data showing underlying price pressures stuck at their lowest level since the 1960s.
The reports on Friday offer the latest evidence that the U.S. economy has slowed considerably in recent months, but were sufficiently firm to dispel, for now, fears of a renewed downturn.
Consumer sentiment appeared to have stabilized in August following a sharp drop in July, while business inventories rose more than analysts had been expecting.
Consumers are still cautious, but it is not double-dip material, said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, Pennsylvania.
The Thomson Reuters/University of Michigan's Surveys of Consumers' preliminary August reading of consumer sentiment rose to 69.6 from the final July reading of 67.8.
Retail sales climbed 0.4 percent last month, following a revised 0.3 percent drop in June and below forecasts for a 0.5 percent gain.
Higher energy costs did boost U.S. consumer prices by 0.3 percent, the first rise in four months. But prices outside food and energy climbed just 0.1 percent, leaving the year-on-year gain, a measure favored by policymakers at the Federal Reserve, at just 0.9 percent for a fourth consecutive month.
Earlier this week, Fed officials expressed some concern about deflation as they decided to offer further stimulus to the economy by using the proceeds from maturing mortgage bonds in the central bank's portfolio to buy more Treasury bonds.
The reports gave stock market investors little reason to reverse a string of selloffs, and indexes posted their fourth day of losses. U.S. crude oil futures also slumped on fears economic recovery was stalling.
Treasury prices rose, as the weaker-than-expected inflation and spending data rekindled a rally in advance of the Federal Reserve's bond purchase program that begins mid-September.
The U.S. dollar chalked up its biggest gain against major currencies in nearly two years because of the view it offered a relative safe haven in a time of volatility.
Some analysts were relieved that the inflation numbers did not soften further.
There's been a lot of talk about deflation but no sign of that is emerging in the data yet, said Zach Pandl, economist at Nomura Securities in New York.
Still, there was plenty of pessimism among economists. The Federal Reserve Bank of Philadelphia's survey of 36 professional forecasters sees the economy growing at an annual rate of 2.3 percent in the third quarter, down from the previous estimate of 3.3 percent that was issued in May.
Market reaction to the figures was muted, with stocks treading water and bond prices climbing modestly.
The retail data revealed some potentially troubling signs. Excluding autos, sales advanced just 0.2 percent compared with a median forecast of 0.3 percent. Gasoline station receipts, which sometimes reflect price rises rather than increased demand, jumped 2.3 percent. When autos and gasoline were stripped out, sales actually fell 0.1 percent.
Retail sales are a key component of growth for a country where consumer spending makes up about two-thirds of total economic activity.
In Europe, which until recently was mired in a seemingly intractable debt crisis, things were looking a bit better.
Germany's economy grew at the fastest rate since reunification in the second quarter as companies stepped up investment and exports surged, providing fresh evidence that the recovery has shifted up a gear. Still, Greece, Ireland and Spain continued to suffer.
(Additional reporting by Doug Palmer in Washington and Chris Reese and Rodrigo Campos in New York; Editing by Kenneth Barry)