April retail sales firm outside auto sector

WASHINGTON (Reuters) - U.S. retail sales excluding cars were surprisingly strong in April, showing consumers still willing to add spending punch to the economy despite soaring food and energy prices, a government report showed on Tuesday.

The report echoed recent data implying underlying economic durability, including fewer job losses in April than feared and a surprisingly strong pace of first-quarter productivity that buoys hope for corporate profits.

The Commerce Department said retail sales declined 0.2 percent, but excluding cars, sales rose 0.5 percent. Economists expected total sales to slip 0.1 percent, but had forecast a gain of just 0.2 percent outside of autos.

"I think it's a report that tells you the economy is very weak, but if we are in a recession, it's going to be a real short one," said Robert MacIntosh, chief economist at Eaton Vance Corp in Boston.

Analysts hope consumer spending will cushion an economic slowdown and offset the dampening impact of falling housing prices, particularly with an added boost coming from government rebate checks being sent to about 130 million taxpayers under a stimulus plan.

The economy is forecast to grow at a scant 0.2 percent annual rate in the second quarter, slowing from the anemic 0.6 percent growth rate in the previous two quarters, according to a survey of economists released by the Philadelphia Federal Reserve Bank on Tuesday.

Many economists believe a recession is all but certain, although the recent string of stronger-than-expected data has strengthened the hands of those who argue otherwise.

"Most of the signs that we are seeing are toward a stronger economy rather than a weaker economy, at least as ... compared to a few months ago," White House economic adviser Edward Lazear told Reuters.

The retail sales data boosted the dollar's value by supporting a view the U.S. Federal Reserve may keep official interest rates on hold. But U.S. Treasury debt prices, which tend to benefit from lower rates, lost ground.

Stock prices were whipsawed throughout the trading session, initially buoyed by the retail sales data, but suffering in later trade after a bevy of Fed speakers warned that markets remained unsettled and inflation was still a threat.

The Dow Jones industrial average .DJI fell 0.34 percent on Tuesday, but the Nasdaq Composite Index .IXIC closed up 0.27 percent.

IMPORT INFLATION

Other data highlighted the squeeze on consumers, who have been caught between soaring food and energy prices and a crumbling housing market.

The Labor Department said U.S. import prices climbed 1.8 percent in April as prices for petroleum and non-petroleum products climbed, feeding worries about the potential for inflation.

Import prices have jumped 15.4 percent over the past year, the biggest 12-month gain since the government began publishing the data more than a quarter century ago.

Separately, the National Association of Realtors said median values of previously owned single-family homes in metropolitan areas fell 7.7 percent from year-ago levels.

The Fed has cut official interest rates 3-1/4 percentage points to 2 percent since mid-September to shield the economy from a credit crunch sparked by the housing crisis, hoping to keep consumers from choking off the spending that fuels two-thirds of U.S. economic activity.

Fed Chairman Ben Bernanke, speaking by teleconference to a conference in Sea Island, Georgia, cautioned that strains remain in the country's financial markets.

FED TO PAUSE?

Analysts said the retail sales numbers might increase chances that Fed policy-makers will pause their rate-cutting campaign and focus more closely on controlling inflation.

"Overall, this supports the view that the Fed will hold interest rates for the next two to three (policy) meetings, said Ron Simpson, director of currency strategy for Action Economics in Tampa, Florida.

In April, sales of building materials gained 1.9 percent, more than reversing a drop in March, while general merchandise store sales rose 0.5 percent.

Lofty gasoline prices have pinched consumers' pocketbooks and reduced their interest in new cars.

Auto dealers suffered a 2.8 percent drop in sales during April, adding to the 0.5 percent decline posted in March. Gasoline stations reported a 0.4 percent decline in April sales after a 1.6 percent rise in March.

The new level of cost consciousness turned up in operating results for Wal-Mart Stores Inc (WMT.N), which rose 7 percent in the quarter ended April 30. The largest U.S. retailer noted its customers were seeking bargains on necessities such as food and were straining from paycheck to paycheck.

"Even if food prices are inflating these figures a bit, consumers still appear prepared to keep spending as long as deals can be had and Uncle Sam foots some of the bill," said Michael Gregory, an analyst with BMO Capital Markets.

(Additional reporting by Doug Palmer, Nancy Waitz, Jeremy Pelofsky and Joanne Morrison in Washington, Gertrude Chavez and Vivienne Rodrigues in New York; editing by Gary Crosse)