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U.S. retail sales rebound, post first gain in four months

A shopper fills her cart at a Target store Thursday, July 5, 2012, in Chicago.

M. Spencer Green/AP

U.S retail sales rose in July for the first time in four months as demand climbed broadly for everything from cars to electronics, a sign that consumers could drive faster economic growth in the third quarter.

Retail sales rose 0.8 per cent last month, the Commerce Department said on Tuesday.

A separate report showed U.S. producer prices climbing in July at the fastest pace in five months, although falling energy prices pointed to muted inflation pressures.

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The gain in retail sales was the largest since February and well above analysts' expectations. Economists polled by Reuters had expected retail sales to rise 0.3 per cent.

The report bolsters the view that the slowdown in economic growth during the second quarter will prove temporary.

"It's a welcome sign for the economy," said Joe Manimbo, a market analyst at Western Union Business Solutions in Washington.

It also offers some relief for President Barack Obama, whose November re-election bid has been imperiled by a weak jobs market. Republican challenger Mitt Romney is focusing his campaign on the weak economy that has plagued Mr. Obama's presidency.

The retail sales and price data could also splash a bit of water on hopes the Federal Reserve could soon launch another bond-buying program to help the economy.

"The reports suggest that the U.S. economy continues to grow, although at a slow pace," said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York. "The numbers moreover reduce the possibility of Fed action at the next meeting."

U.S. stock index futures rose on the data along with yields on U.S. government debt. The U.S. dollar rose against the yen.

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Job creation in the United States slowed dramatically in the second quarter as consumer spending cooled and economic growth slowed. Job creation accelerated last month although the unemployment rate still rose to 8.3 per cent.

Pointing to a strong increase in consumer spending during July, the so-called core measure of retail sales – which excludes autos, gasoline and building materials – rose 0.9 per cent. That was the biggest gain since January.

Strength in consumer spending could help corporations doing business in the United States. Home Depot Inc. raised its fiscal-year earnings outlook on Tuesday as tight cost controls helped the world's largest home improvement chain to offset sales weakness and beat Wall Street's profit estimates in the latest quarter.

In July, sales of motor vehicles and parts rose 0.8 per cent. Receipts at electronics and appliance stores increased 0.9 per cent. Sales of building materials gained 1.0 per cent, while receipts as gasoline stations advanced 0.5 per cent.

Excluding autos, sales climbed 0.8 per cent.

Still, dark clouds continue to loom over the economic outlook.

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The euro zone's debt-ravaged economy shrank in the second quarter after flatlining in the first, a report showed on Tuesday.

U.S. small business sentiment fell for a third straight month in July as owners worried about sales revenue, according to a survey by the National Federation of Independent Business. The NFIB index eased to 91.2 last month from 91.4 in June.

Europe's debt crisis appears to be slowing growth around the world, including in China, and has pushed oil prices lower this year.

The producer prices report reflected the drop in oil prices.

While prices rose for light trucks, pharmaceutical drugs and cigarettes, the gain in the overall index was muted by a drop in energy prices.

The Labor Department said its seasonally adjusted Producer Price Index climbed 0.3 per cent last month. Analysts polled by Reuters expected the index to increase 0.2 per cent.

The increase was driven by gains in consumer goods, with light trucks up 1.6 per cent and pharmaceuticals up 0.9 per cent.

Higher food costs also fueled the gain in the overall index. U.S. crops have been struck by a drought in parts of the country.

Energy prices, however, fell 0.4 per cent last month. They were down for a fifth straight month in a trend that has been cooling inflation pressures. Wholesale gasoline prices fell 3.1 per cent in July.

While overall inflation has cooled recently, core inflation has held at higher levels. Some policy makers at the Fed worry that further moves to lower borrowing costs could fuel higher inflation, though the central bank has said it was ready to do more to help the economy if needed.

The fall in energy prices is likely to help the economy as lower costs for fuels and other input prices leave companies more money to spend on other things, such as equipment or even hiring.

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