May 13 (Bloomberg) -- Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is prompting consumers to conserve cash.

The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Other reports showed companies continued to cut stockpiles as demand slowed, and climbing oil costs pushed up prices for imported goods.

Fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers’ ability to spend for years, analysts said. Stocks dropped for a third day as the reports indicated any recovery from the worst recession in at least half a century is likely to be subdued.

“It looks like consumers are losing momentum heading into the second quarter and that is a very worrisome development,” said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. “They have very significant headwinds and number one among them is that the labor market is far from turning the corner.”

The Standard & Poor’s 500 Stock Index fell 2.7 percent to close at 883.92. Benchmark 10-year note yields fell to 3.11 percent at 4:16 p.m. in New York from 3.18 percent late yesterday.

A separate report from Commerce showed inventories at U.S. businesses fell 1 percent in March, a seventh consecutive drop as slumping sales forced companies to pull back. The streak of decreases is the longest since 2001-2002.

Oil Prices

Prices of goods imported into the U.S. climbed 1.6 percent in April, more than three times as much as forecast, a report from the Labor Department also showed. Excluding oil, prices were down 0.4 percent.

Economists surveyed by Bloomberg earlier this month projected consumer spending will be unchanged this quarter after rising 2.2 percent the first three months of the year. Today’s sales figures run counter to an industry report last week that showed demand improved.

Kohl’s Corp. and BJ’s Wholesale Club Inc. were among retailers last week that said first-quarter preliminary earnings exceeded their forecasts and April sales signaled shoppers are returning to stores. Wal-Mart Stores Inc., the world’s largest retailer, said sales at U.S. stores open at least a year rose 5 percent, also beating estimates.

Economists had forecast retail sales would be unchanged, according to the median of 67 projections in a Bloomberg News survey, after a previously reported 1.2 percent drop in March. Estimates ranged from a 0.8 percent decline to an increase of 1.1 percent.

Electronics, Clothing

The decline in sales was led by falling demand at electronics, furniture, clothing and grocery stores.

“The second quarter is going to be tough,” Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in a Bloomberg Television interview. “Consumers are losing their jobs, concerned about losing their jobs and losing wealth.”

Receipts at service stations also fell in April, even as fuel prices climbed, indicating Americans may be cutting back on driving to save money.

Car dealers, unexpectedly, were among the retailers that showed an increase last month. Auto sales gained 0.2 percent after dropping 2 percent in March. The government figures don’t always correlate with industry reports issued earlier in the month.

Auto Slump

Autos sold at a 9.3 million annual pace in April, compared with a 9.9 million rate in March, according to industry data. Chrysler LLC, whose U.S. sales tumbled 48 percent in April from the same month last year as bankruptcy neared, said last week it will offer rebates of as much as $6,000 to boost demand. The incentives began May 6 and end June 1.

Excluding autos, retail sales also fell unexpectedly, dropping 0.5 percent in April. They were projected to rise 0.2 percent, according to a Bloomberg survey.

Purchases at clothing retailers decreased 0.5 percent. Those at general-merchandise stores fell 0.1 percent.

The Federal Reserve and Treasury are trying to revive the markets for securities backed by car loans and other consumer credit, in an effort to revive economic growth. The joint program, called the Term Asset-Backed Securities Loan Facility, is designed to grow as large as $1 trillion.

‘Starting to Heal’

“The financial system is starting to heal,” Treasury Secretary Timothy Geithner said in a speech in Washington today. “Concern about systemic risk has diminished. And overall lending conditions have started to improve.”

Retail sales fell even as sentiment started to rebound. Consumer confidence jumped in April by the most since 2005, according to a report last month by the Conference Board, a New York-based private research group.

Payrolls fell by 539,000 workers last month, the smallest drop since October, the Labor Department reported last week. Still, the jobless rate climbed to 8.9 percent, the highest level since 1983, and economists surveyed this month project joblessness will average 9.6 percent in 2010.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

Last Updated: May 13, 2009 16:18 EDT