Dec. 12 (Bloomberg) -- U.S. retail sales fell in November for a record fifth consecutive month, led by slumps at auto dealers and service stations that overshadowed gains at electronic and department stores.

The 1.8 percent decrease was smaller than forecast and extended the longest string of declines since records began in 1992, the Commerce Department said today in Washington. Sales at service stations dropped by a record 15 percent as fuel costs plummeted.

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. Still, the loss of almost 1.3 million jobs since August and record declines in home values have shaken Americans, indicating sales are unlikely to keep improving in coming months.

Cheaper gasoline “freed up a lot of money to be spent elsewhere,” said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. “That discounting that we’ve seen at the department stores appears to have worked, it’s bringing people in. It’s a surprisingly good report today for retail sales, but it flies in the face of what the retailers are telling us.”

Producer Prices Fall

Last month’s record decline in gasoline costs resulted in a bigger-than-forecast drop in prices paid to U.S. producers, another government report today showed. The 2.2 percent decrease in the producer price index followed a record 2.8 percent plunge in October, the Labor Department said. The measure that excludes fuel and food gained 0.1 percent, after rising 0.4 percent a month earlier.

Treasuries rallied and stock-index futures fell in the aftermath of the Senate’s failure late yesterday to approve a bailout for General Motors Corp. and Chrysler LLC. Ten-year Treasury yields fell to 2.56 percent at 8:56 a.m., from 2.61 percent late yesterday. Futures contracts on the Standard & Poor’s 500 Stock Index slid 3.5 percent to 844.10.

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. Forecasts ranged from declines of 0.7 percent to 4 percent. 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.

Growth Impact

Excluding 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.

The Senate yesterday rejected a $14 billion rescue plan for General Motors Corp. and Chrysler LLC that the carmakers said they needed to keep from running out of cash by early next year. It’s now up to President George W. Bush to decide whether to let the companies collapse or tap other sources of financing such as the $700 billion bank-rescue fund.

Gas Stations

The drop in filling station sales probably reflected a $1- per-gallon drop in the average cost of gasoline. Excluding gas, retail sales fell 0.2 percent, also the best performance since May.

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.

Still, the worsening labor market indicates spending is unlikely to rebound. The unemployment rate climbed to 6.7 percent in November, the highest level since 1993. Employers have cut 1.9 million workers from payrolls so far this year.

The employment outlook is likely to drag down holiday shopping, a time when many stores expect to reap up to half of their annual revenue. Same-store sales in the U.S. fell 2.7 percent in November from a year earlier, the biggest drop since records began in 1969, the International Council of Shopping Centers said last week.

Discounts

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.

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 to a 30 percent decrease in the S&P 500 index.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Last Updated: December 12, 2008 08:59 EST