April 14 (Bloomberg) -- Americans spent less on furniture, clothing and appliances in March as the economy faltered and more of their money went to pay for gasoline and food.

Retail sales rose 0.2 percent, the Commerce Department said today in Washington. Economists surveyed by Bloomberg News had forecast no change. The figures also showed purchases excluding gas were unchanged. Companies' stocks of unsold goods rose 0.6 percent in February as sales dropped, a separate report showed.

Consumer spending, which accounts for more than two-thirds of the economy, is waning as households struggle with an 11 percent jump in gas prices this year to $3.37 a gallon, a rising jobless rate and a slump in home values. Investors anticipate that the Federal Reserve will cut its benchmark interest rate at least a quarter point this month to alleviate the economic downturn.

``Spending is pretty sluggish,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York, who correctly forecast the sales figure less autos. ``If you're getting an inflationary increase in gasoline and food, that would mask the true weakness in consumer spending. This is consistent with recessionary conditions.''

Treasury securities, which had risen earlier in the day, lost their gains as the retail sales report beat economists' estimates. Yields on benchmark 10-year notes were at 3.51 percent at 4:18 p.m. in New York, compared with 3.47 percent at its close April 11. The Standard & Poor's 500 retailing index advanced 0.1 percent, to 387.85.

Business Inventories

The gain in business inventories in February followed a revised 0.9 percent rise the previous month. Sales fell 1.1 percent, the most since January 2007.

The median retail sales estimate was based on a survey of 65 economists by Bloomberg News. The government had previously reported a 0.6 percent drop in February sales.

Excluding autos, sales rose 0.1 percent, as forecast, following a 0.1 percent decline in February.

The figures aren't adjusted for inflation, so price increases can influence the data. The average cost of a gallon of regular gasoline last month jumped 6.9 percent compared with February, according to figures from AAA, the nation's largest automobile club.

Receipts at filling stations increased 1.1 percent in March following a 0.5 percent decline the prior month.

``You'll still see a sluggish if not contracting economy,'' Lakshman Achuthan, managing director of the Economic Cycle Research Institute in New York, said in a Bloomberg Television interview. The Fed will cut rates ``more than you think. Right now, it's about fighting the recession.''

Housing Recession

Sales of furniture, electronics and appliances, and building materials all dropped in March amid the biggest slump in the housing industry in a quarter century.

Today's report showed sales at automobile dealerships and parts stores increased 0.2 percent after dropping 1.2 percent in February.

Americans are buying fewer big-ticket items like homes and refrigerators as consumer confidence drops and companies cut staff.

Consumer sentiment slumped to a 26-year low this month, according to a preliminary report from Reuters/University of Michigan issued last week. The index of expectations for the next six months, a leading indicator of spending, dropped to the lowest level since November 1990.

Car Sales

Cars and light trucks sold at an average 15.2 million annual pace in the first three months of the year, the fewest since the third quarter of 1998. Auto sales will fall to 14.9 million this year, the lowest since 1995, Standard & Poor's forecast last week.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product, sales increased 0.2 percent after no change the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.

Purchases at general merchandise stores dropped 0.6 percent. Sales at chain stores open at least a year fell 0.5 percent in March, the biggest decline in almost a year, the International Council of Shopping Centers said last week.

Consumer spending will rise at an average annual pace of 0.5 percent in the first half of the year, according to a Bloomberg survey of economists taken in the first week of April. That would be the smallest two-quarter gain since purchases dropped in the six months that ended March 1991.

Recession Odds

The odds the economy will be in a recession in the next 12 months jumped to 70 percent in April from 50 percent in March, according to a monthly survey of economists by Bloomberg.

Employers cut 80,000 workers from payrolls in March, a third straight reduction and the most in five years, the government said this month. The unemployment rate rose to 5.1 percent, the highest level since September 2005.

Some retailers aren't counting on a quick end to the U.S. economic slump.

``I don't think we're very optimistic about it ending anytime soon,'' J.C. Penney Co. Chief Executive Officer Myron Ullman said last week at the World Retail Congress in Barcelona. He reiterated that J.C. Penney plans to open 36 stores this year, down from an original plan of 50.

CEO Pessimism

Chief executive officers last quarter grew more pessimistic about the economy, according to a report today from the New York- based Conference Board. The private research group's CEO index fell to 38, the lowest level in seven years, compared with 39 the previous three months. Readings less than 50 indicate more pessimistic than optimistic responses.

Just one quarter of the company chiefs anticipated an increase in hiring in their industry over the next six months, down from 42 percent at the same time last year.

Fed officials, during their March 18 policy meeting, raised the possibility the economy would shrink in the first half of the year, according to minutes of the gathering issued last week.

``Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' the report said. ``Some believed that a prolonged and severe economic downturn could not be ruled out.''

Investors project the odds of at least a quarter-point reduction in the Fed's benchmark rate is 100 percent at its April 30 meeting, according to futures trading. The chance of another cut at the following meeting in June is 70 percent.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: April 14, 2008 16:28 EDT