July 14 (Bloomberg) -- Surging gasoline costs spurred gains in U.S. retail sales and wholesale prices in June, while a drop in spending outside of auto dealers and service stations reinforced concern an economic recovery will be limited.

Sales at retailers rose 0.6 percent from May, more than forecast and the biggest gain since January, Commerce Department figures showed today in Washington. Excluding autos and gas, purchases dropped for a fourth consecutive month. The Labor Department’s producer-price index gained 1.8 percent, twice as much as anticipated.

Today’s figures indicate that consumer spending likely fell last quarter, with little momentum heading into the latter part of the year. Job losses and declining home values are weighing on households, leaving them with little appetite to spend more, other than on necessities or at discount chains such as TJX Cos. and 99 Cents Only Stores.

“Consumers aren’t prepared to spend” and that “means a very lame recovery,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts. “The immediate threat of inflation is nil. Price pressures really aren’t there.”

Treasuries trimmed losses immediately after the reports before resuming their slide, while stocks advanced. The benchmark 10-year note yields climbed to 3.46 percent at 4:21 p.m. in New York from 3.35 percent late yesterday. The Standard & Poor’s 500 Stock Index closed up 0.5 percent at 905.84.

Inventories Drop

A separate government report today showed companies cut stocks of unsold goods for a ninth straight month in May. Business inventories dropped 1 percent, more than forecast, after a 1.3 percent decline in April, Commerce Department figures showed.

Retail sales were projected to rise 0.4 percent in June after a 0.5 percent gain in May, according to the median estimate of 74 economists in a Bloomberg News survey. Forecasts ranged from a gain of 1.2 percent to a 1 percent decline.

Excluding automobiles, sales increased 0.3 percent after a 0.4 percent May gain. They were forecast to increase 0.5 percent, according to the survey median.

“Consumers are still very cautious,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “We need the labor market to pick up for the improvement to continue. The economy is still on track for a weak recovery in the second half of the year.”

Influence on GDP

Excluding autos, gasoline and building materials -- the retail group the government uses to calculate gross domestic product figures for consumer spending -- sales dropped 0.1 percent, the same as in the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.

Sales at automobile dealerships and parts stores climbed 2.3 percent, the most since January. Industry figures released earlier this month, the ones used to calculate GDP, showed a drop in sales. Purchases declined to a 9.7 million annual pace from a 9.9 million rate in May, according to data from Woodcliff Lake, New Jersey-based Autodata Corp.

In addition to auto dealers and service stations, sales also improved at electronics, grocery and sporting-goods stores. Demand slumped at restaurants, furniture and department stores.

Government efforts to restore the flow of credit and prop up incomes, through tax cuts and supplemental Social Security payments from the Obama administration’s stimulus plan, are allowing consumers to spend even as they fret about jobs.

Job Losses

The economy has lost 6.5 million jobs since the recession started in December 2007, the worst of any downturn since World War II, and GDP contracted at a 5.5 percent annual rate in the first quarter, the third consecutive drop.

Growth will average 1.5 percent in the July-to-December period after another contraction in the second quarter, according to a Bloomberg survey taken from July 2 to July 8. The jobless rate, meanwhile, will exceed 10 percent early next year and average 9.8 percent for 2010, the survey said.

Economists at Morgan Stanley in New York lowered their projections for second-quarter consumer spending and GDP following the sales report.

Industry figures this month showed June sales at stores open at least a year climbed at discounters such as Framingham, Massachusetts-based TJX, owner of T.J. Maxx and Marshalls stores, and Pleasanton, California-based Ross Stores Inc., owner of the Ross Dress for Less chain. Both companies raised their second-quarter profit projections.

Budget Conscious

Price-conscious customers also drove up sales in the quarter ended in June at City of Commerce, California-based 99 Cents, which sells groceries, electronics and health and beauty items.

“Many middle-to-upper-income consumers are coming into our stores for the first time for their household needs due to the recession,” Chief Executive Officer Eric Schiffer said in a July 9 statement.

A 6.6 percent increase in the cost of energy led to the increase in wholesale prices, the report from Labor showed. Gasoline soared 18.5 percent and home heating oil rose 15.4 percent. These costs are retreating this month, according to crude-oil futures trading.

A report from Labor tomorrow may show consumer prices increased 0.6 percent in June after rising 0.1 percent the prior month, economists forecast.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

Last Updated: July 14, 2009 16:25 EDT