Aug. 12 (Bloomberg) -- U.S. retail sales rose last month and initial jobless claims unexpectedly declined to the lowest level in five weeks, signs that the economic expansion regained momentum in the third quarter.

Retail sales increased 0.7 percent to a $336.5 billion annual rate as Americans spent more on cars and furniture, the Commerce Department said in Washington. June sales fell 0.5 percent instead of the 1.1 percent drop first reported. The number of Americans seeking unemployment benefits for the first time fell by 4,000 to 333,000 last week, the Labor Department said.

Sales "bode well for the second half of the year,'' H. Lee Scott, chief executive officer of Wal-Mart Stores Inc., said on a recording after the world's largest retailer reported quarterly profit rose 16 percent.

Consumer spending may be recovering after expanding last quarter at the slowest pace since the 2001 recession, said economists including David Greenlaw of Morgan Stanley in New York. The Federal Reserve this week raised its benchmark interest rate for the second time this year, saying the recent slowdown was likely temporary and that inflation was under control.

July's retail report "provides a better ramp heading into the third quarter,'' said Greenlaw, the firm's chief U.S. fixed income economist. Consumer spending now may grow at a 4.3 percent annual pace this quarter compared with a previously estimated gain of 3.5 percent, he said.

Inventories at U.S. companies increased in June by the most in four years as retail sales fell that month, the Commerce Department said today. U.S. companies paid 0.2 percent more for imported goods and materials last month than in June, as prices for oil, chemicals and metals rose, the Labor Department said.

Energy Prices

Both the Fed and Wal-Mart's Scott based their optimism in part on the idea that rising energy prices that have hurt consumer spending are temporary, something economists said isn't yet borne out in the energy markets. Crude oil prices reached a record $45.50 a barrel today on the New York Mercantile Exchange.

"If oil stays up so high and households and businesses start assuming this is a permanent, not temporary, price hike, there will be adjustments to demand,'' said Joel Naroff, president of Naroff Economic Advisers in Holland, Pennsylvania. "The greatest risk to the economy is not the economic fundamentals, which remain solid, but the energy'' prices, he said.

Amy Beebe, a 37-year-old stay-at-home mom from Delran, New Jersey, said she is buying more items on clearance at Wal-Mart to save money. The continued high price of gasoline "affects your pocketbook, but I don't stop going,'' she said in an interview.

Forecasts

Economists had expected retail sales to rise 1.2 percent to $335.9 billion, based on the median forecast of 71 estimates. The lower-than-expected result was countered in part by the revision to June, economists said. Retail sales account for almost 60 percent of all consumer spending.

"The weakness that was apparent in earlier months likely overstated the weakness in consumer spending,'' said Richard DeKaser, chief economist at National City Corp., in Cleveland.

Initial jobless claims fell for a second straight week and were the lowest since the week ended July 2, the Labor Department said. The median forecast was for claims to rise to 340,000. The four-week moving average fell to 339,250 from 343,500.

The benchmark U.S. 10-year Treasury note rose 3/16 point, pushing its yield down to 4.25 percent as of 2:28 p.m. in New York from 4.27 percent yesterday. The Dow Jones Industrial Average, which has declined 6 percent this year in part on lower corporate profit forecasts, fell 105.45 points to 9832.87.

'Stutter Step'

"The economy did a little bit of a stutter step'' last quarter, said Carly Fiorina, CEO of Hewlett-Packard Co., the world's No. 2 maker of personal computers, which cut its profit forecast today.

Auto sales rose in July as General Motors Corp. and other automakers boosted discounts after cars and light trucks sold in June at the slowest pace in six years. The average incentive was $3,991 per vehicle during the first half of July, up from $3,667 in June and $3,983 in July 2003, according to CNW Marketing Research in Bandon, Oregon.

Excluding vehicles and parts, July sales rose 0.2 percent after rising 0.3 percent a month earlier. Sales excluding automobiles were forecast to rise 0.4 percent after an initially reported 0.2 percent drop in June, according to the median forecast in a Bloomberg survey.

Sales at automobile dealerships and parts store rose 2.4 percent last month after falling 3 percent. Furniture sales increased 1.1 percent after rising 2.6 percent.

Wal-Mart

Sales at general merchandise stores, which include department stores, rose 1 percent last month after falling 0.2 percent in June. Department store sales rose 0.2 percent. Sales at clothing and accessory stores fell 0.1 percent after declining 0.5 percent.

Bentonville, Arkansas-based Wal-Mart said today that same- store sales rose 4.1 percent in the second quarter from the same three months last year.

"We are on track for another record year,'' Scott said in a statement. Wal-Mart now expects annual profit of $2.36 to $2.40 a share, up from a previously estimated $2.39 a share.

Federated Department Stores, the owner of Macy's and Bloomingdale's, raised its annual profit forecast yesterday. Terry Lundgren, CEO of the Cincinnati-based company, said in a statement that he expects "strength to continue into the fall season.''

Electronics, Music

Sales at electronics and appliance stores rose 0.2 percent after a 0.7 percent rise. Purchases at sporting goods, hobby, book and music outlets advanced 1.3 percent while sales at food and beverage stores increased 0.1 percent. Sales at restaurants and bars rose 0.6 percent after rising 0.2 percent a month earlier.

Receipts at service stations fell 0.5 percent following a 0.1 percent rise in June. Excluding cars and gasoline, sales rose 0.3 percent for a second straight month.

Consumers got some relief from lower gas prices. The average retail price of gasoline fell to $1.95 a gallon in July after averaging more than $2 a gallon in June and May, according to Department of Energy figures. The average retail price of all grades of gasoline rose to a record $2.10 a gallon on May 24.

Sales at building material and garden supply stores declined 1.1 percent last month following a rise of 0.5 percent in June.

Purchases excluding autos and building materials, the category used in the Commerce Department's calculation of personal consumption in its report on gross domestic product, rose 0.4 percent after rising 0.2 percent in June.

Consumer spending is forecast to rise at a 3.2 percent annual rate in the third quarter, based on the median estimate of 48 economists polled by Bloomberg News. Spending rose 1 percent in the second quarter, the slowest pace since the 2001 recession.

Consumer Spending

Slower job gains in June and July, and energy prices that rebounded this month to a record high pose a risk to consumer spending in the second half, economists said. A Labor Department report Friday showed that employment grew by 32,000 in July, the smallest gain this year.

Economists surveyed by Bloomberg News from July 30 to Aug. 6 reduced forecasts for third-quarter economic growth amid concerns that record oil prices and shriveling job gains will cut consumer spending. Growth this year was forecast at 4.3 percent, down from a projection of 4.5 percent in the survey a month earlier.

The U.S. economy grew at a 3 percent annual rate from April through June, the slowest in more than a year, as energy prices rose and consumer spending slowed.

"In recent months, output growth has moderated and the pace of improvement in labor market conditions has slowed,'' members of the Fed's rate-setting Open Market Committee said in a statement after their meeting Tuesday in Washington. "This softness likely owes importantly to the substantial rise in energy prices.''

Fed policy maker's concern about firming business confidence, and an acceleration of inflation prompted them to raise the overnight bank lending rate for the first time in four years on June 30, according to minutes of the meeting released today.

Mortgage Rates News, Mortgage News, Financial News