June 11 (Bloomberg) -- Retail sales rose in May for the first time in three months, an increase driven almost solely by U.S. shoppers returning to automobile showrooms seeking bargains and the rising cost of gasoline.

The pending demise of thousands of Chrysler LLC and General Motors Corp. dealers attracted customers constrained by rising unemployment and falling home values. While the fiscal stimulus may help shore up demand, a record loss of household wealth is increasing Americans’ appetite to boost savings, signaling spending gains will be slow to develop.

Retail sales rose 0.5 percent, as forecast, after a 0.2 percent drop in April, the Commerce Department said in Washington. Sales excluding autos also increased 0.5 percent, led by gasoline as prices jumped last month. A separate report showed claims for jobless benefits fell last week.

“It’s indicative of a bottoming out process, but we don’t have much forward momentum to speak of,” said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. “The consumer is not ready to spend in earnest yet because of the weak job and income environment.”

Treasuries, which had fallen earlier in the day, surged after an auction of 30-year bonds drew investors. Yields on benchmark 10-year notes were at 3.85 percent at 5:13 p.m. in New York, down from 3.95 percent late yesterday. The Standard & Poor’s 500 Stock Index closed up 0.6 percent at 944.89. The S&P retailer composite index fell 1.9 percent to close at 321.36.

Wealth Slumps

U.S. household wealth fell in the first quarter by $1.3 trillion, extending the biggest slump on record, as home and stock prices dropped, according to the Federal Reserve’s Flow of Funds report today. The decline was the sixth straight.

The number of Americans filing claims for unemployment insurance fell for the third time in four weeks, to 601,000, lower than economists had forecast. The number of jobless continuing to collect benefit payments still rose to a record for the 19th straight time, to 6.82 million.

Inventories at U.S. businesses fell in April for an eighth straight month, the longest stretch since 2002, as companies cut back in the face of slowing sales. The 1.1 percent decline in stockpiles followed a revised 1.3 percent drop in March and sales decreased 0.3 percent, Commerce also said today.

Economists forecast retail sales would rise after a previously reported 0.4 percent drop in April. Estimates ranged from a drop of 0.3 percent to an increase of 1.4 percent.

Excluding autos, sales were projected to rise 0.2 percent after a 0.5 percent decrease a month earlier, according to the survey.

Auto Sales

Car dealers were among the retailers that performed the best last month. Auto sales increased 0.5 percent after falling 0.4 percent in April.

Sales of cars and light trucks rose to a 9.9 million annual unit pace in May from a 9.3 million rate the prior month, industry figures last week showed. Purchases reached a 9.1 million pace in February, the lowest level since December 1981.

General Motors, Chrysler and Ford Motor Co., the only major U.S. automaker not in bankruptcy, all had smaller declines than forecast in comparison with May 2008.

“It’s just a slight uptick,” Ken Czubay, Ford vice president of sales and marketing, said on a conference call June 2. “This is still a very fragile industry.”

Receipts at service stations climbed 3.6 percent in May, reflecting in part higher gasoline prices. Fuel costs have continued to rise, according to AAA, which may again boost those sales this month.

Gainers

Building-material, clothing, grocery stores and pharmacies were among the other retailers that showed gains in demand.

Excluding cars, gasoline and building materials, the figures used in calculating gross domestic product, sales were unchanged last month after falling 0.1 percent in April.

The International Council of Shopping Centers last week said May same-store sales dropped 4.6 percent from the same month last year, more than double its forecast of a 2 percent decline. Macy’s Inc., Dillard’s Inc. and Saks Inc. were among merchants that reported steeper declines than analysts estimated as Americans focused on buying essentials rather than discretionary items.

With home values falling, credit tight and unemployment forecast to keep rising after reaching a 25-year high of 9.4 percent reached in May, consumers are reluctant to spend on anything beyond necessities such as gasoline and food.

More Unemployment

The jobless rate will climb to 10 percent by the end of 2009, 1.6 percentage points higher than projected at the start of the year, according to the median forecast of economists surveyed this month.

Personal spending, which accounts for 70 percent of the economy, will fall at a 0.6 percent annual pace in the current quarter and rise at an average 1.1 percent pace in the last six months of the year, down from last month’s projections. For all of 2009, purchases will drop 0.7 percent, the worst performance since 1974.

Consumers are boosting savings to ride out the recession. The savings rate rose to 5.7 percent of disposable income in April, the highest since 1995. The rate averaged 1.7 percent in the past decade.

“Government transfers boosted incomes in April and yet spending dropped and the savings rate shot up, so a portion of the money was used to pay down debt,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York.

Wal-Mart Stores Inc., the biggest retailer, is among companies benefiting as Americans seek discounted merchandise. Wal-Mart projected last month that U.S. comparable-store sales may rise as much as 3 percent in the 13 weeks through July 31.

Federal Reserve Chairman Ben S. Bernanke last week told Congress that the pace of decline in the economy was slowing and consumer spending had stabilized.

Spending “has been roughly flat since the turn of the year,” he said. While the fiscal stimulus will boost spending power, weak labor conditions, tight credit and falling wealth may limit sales, he said.

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

Last Updated: June 11, 2009 17:21 EDT