Dec. 12 (Bloomberg) -- U.S. retail sales fell for a record fifth consecutive month in November and wholesale prices tumbled as the deepening recession pulls inflation down.

The 1.8 percent decline in sales was smaller than forecast because discounts drew in more shoppers at department stores and electronic retailers, Commerce Department figures showed in Washington. Still, a record hit to household wealth means consumers will likely retreat further in December, analysts said.

Car sales fell for the ninth time in 10 months, according to the report, underscoring calls for a government bailout for General Motors Corp. and Chrysler LLC. The fall in consumer spending helped spark a fourth straight monthly retreat in wholesale prices in November, a separate report showed, giving the Federal Reserve further room to pump cash into the economy.

“If retailers are willing to sell at a loss, consumers are willing to buy,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “As we get into next year it’ll become more and more evident that the consumer is a big weight on economic growth,” he said, predicting that “the consumer goes into hibernation for a while” after Christmas sales.

Stocks and Treasuries rose. Ten-year note yields fell to 2.57 percent at 5 p.m. in New York, from 2.61 percent late yesterday. Treasuries had fallen earlier in the day after the Bush administration said it’s willing to provide emergency funding for GM and Chrysler. The Standard & Poor’s 500 Stock Index climbed 0.7 percent to close at 879.73.

Department Stores

Purchases at department stores rose by the most in three years as Americans took advantage of discounts by retailers, from Toys “R” Us Inc. to Neiman Marcus Group Inc., to start shopping for the holidays. Wal-Mart Stores Inc. said it beat its own forecast for November sales.

“You wouldn’t start feeling comfortable about consumer spending until you start feeling more comfortable that the declines in payrolls were abating,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “Some of the declines in the labor market unfortunately may be with us a little longer than the decline in gas prices.”

The loss of almost 1.3 million jobs since August and record declines in home values foreshadow further declines in sales. The Fed said yesterday that households’ net worth decreased by $2.81 trillion in the third quarter.

Bright Spot

One bright spot for households remains the slide in gasoline prices. Sales at service stations dropped by a record 15 percent as fuel costs plummeted, the Commerce Department said.

The Labor Department said its producer-price index fell 2.2 percent in November from the previous month, led by energy and food costs. The PPI was up 0.1 percent excluding those two items.

Producer prices are one of three monthly inflation gauges reported by Labor. Prices of goods imported into the U.S. fell last month by the most on record, a report showed yesterday. Figures due Dec. 16 may show November consumer prices fell 1.3 percent, the most on record, according to a Bloomberg survey of economists.

Companies paid 0.4 percent more for goods than in November 2007, after a 5.2 percent gain in the 12 months ended in October, the Labor Department said today. Excluding food and energy, the increase was 4.2 percent from a year earlier, after a 4.4 percent year-over-year gain in the prior month.

Sentiment Rose

Consumer sentiment rose this month from a 28-year low, stoked by gas-price declines. The Reuters/University of Michigan preliminary index of consumer sentiment rose to 59.1 from 55.3 in November.

Fed policy makers meet Dec. 15-16, when economists anticipate they will lower the benchmark interest-rate target by half a point to 0.5 percent, the lowest on record. Central bankers are also set to discuss measures that go beyond rate cuts. President-elect Barack Obama plans a stimulus package of unprecedented size to shore up the economy.

Speaker Nancy Pelosi said the U.S. House is likely to act next month on a $500 billion to $600 billion economic-stimulus measure that would include investment in renewable energy.

“Economists told us that the package had to be strong enough, half a trillion, $600 billion, somewhere near that,” Pelosi said in an interview on Bloomberg Television’s “Political Capital with Al Hunt.”

Projected To Fall

Retail sales were projected to fall 2 percent after an originally reported 2.8 percent drop the prior month, according to the median estimate of 73 economists in a Bloomberg News survey. The drop in October sales was revised to 2.9 percent from 2.8 percent.

Excluding autos, purchases dropped 1.6 percent, also less than anticipated.

Stripping out autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.5 percent, the most since May, after falling 0.7 percent the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.

Today’s report showed sales at automobile dealerships and parts stores dropped 2.8 percent after slumping 5.5 percent.

Purchases of expensive goods are falling as banks restrict access to credit. Auto sales fell 37 percent in November from the same month last year, making it the worst month since 1982.

Slumping Market

Sales at stores selling building materials showed a 1.2 percent decrease, reflecting the slumping housing market.

Electronic stores had a 2.8 percent jump in receipts, the most since January 2006, and sales at department stores climbed 2.1 percent, the most since October 2005.

The increases seemed “suspicious” to economists from Morgan Stanley, who said the government may have overcompensated for the late Thanksgiving this year, causing retail figures to appear stronger.

“We are somewhat suspicious of the November results,” David Greenlaw and Ted Wieseman said in a note to clients. “If our hunch is correct, either the November results will subsequently be revised downward or there will be an offset in December.”

Neiman Marcus, the luxury retailer owned by Warburg Pincus LLC and TPG Inc., said this week that profit in the quarter ended Nov. 1 dropped after it used discounts to reduce inventories. Earnings this quarter will also be hurt because of higher markdowns as sales “remain weak for an extended period of time,” the Dallas-based retailer said in a regulatory filing Dec. 10.

‘Very Aggressive’

Toys “R” Us, the largest U.S. toy-store chain, said it is putting on “very aggressive” promotions this holiday season to attract shoppers.

“We know that value is very important in this economic situation and we’re determined to be aggressive throughout the holiday season in offering that value,” Chief Executive Officer Gerald Storch said Nov. 28 in a telephone interview. “We knew that the economy was going to be soft. Obviously, no one had a crystal ball to know that we have a financial crisis like we’ve had.”

The Standard & Poor’s retailer composite index has dropped 35 percent over the last three months compared with a 30 percent decrease in the S&P 500 index.

To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.netShobhana Chandra in Washington schandra1@bloomberg.net

Last Updated: December 12, 2008 17:14 EST