Autos lift U.S. retail sales; inflation perks up

By Emily Kaiser

WASHINGTON (Reuters) - A jump in auto and gasoline sales salvaged an otherwise lackluster June for U.S. retailers, while an inflation gauge jumped by twice as much as expected, suggesting a long-awaited economic recovery will be sluggish.

Commerce Department data on Tuesday showed sales at U.S. retailers rose 0.6 percent from a month earlier, ahead of economists' expectations for a 0.4 percent advance.

However, outside of autos and gas stations the sales results were disappointingly weak, indicating consumers remained wary of stepping up discretionary spending despite signs the recession may be drawing to a close.

"We fell off a cliff at the end of last year and we're at a relatively flat point right now," Rebecca Blank, undersecretary for economic affairs at the Commerce Department, told Reuters. "The movement is in the right direction but it's not strong enough yet to call this clear signs of the recovery.

A separate report from the Labor Department showed producer prices jumped 1.8 percent last month, far outstripping forecasts for a 0.9 percent gain.

Another set of data showed business inventories fell for a ninth consecutive month, pressured by a steep drop in stocks of motor vehicles and parts.

U.S. stocks closed modestly higher, while U.S. government debt prices fell. The dollar was down slightly against a basket of currencies.

Investor attention was focused on quarterly earnings from investment bank Goldman Sachs Group Inc (GS.N), which were much stronger than expected.

Other quarterly results in a busy week for corporate earnings reports pointed to an economy that was bottoming but struggling to pick up much momentum.

Pharmaceutical and consumer products maker Johnson & Johnson (JNJ.N) posted lower earnings, but the results still beat analysts' expectations. The chief executive of railroad CSX Corp (CSX.N) said the worst of the declines appeared to be over, but it was unclear how long it would take to recover.

With unemployment at a 26-year high and likely to keep climbing, consumers have been reluctant to splurge, and that has left businesses feeling conservative about hiring and investment. President Barack Obama said he expected unemployment to keep ticking up in the coming months.

Still, U.S. Treasury Secretary Timothy Geithner struck a somewhat more upbeat note, saying he saw signs of confidence returning to the U.S. financial sector.

JUST THE BASICS

Excluding autos and parts, which recorded a 2.3 percent gain, retail sales were up a modest 0.3 percent, short of analysts' expectations for a 0.5 percent advance.

Gasoline stations showed strong gains, helped by rising prices. The average price per gallon of gas rose to $2.68 in June from $2.32 in May, according to government data.