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April retail sales hint at slower spending pace

By Lucia Mutikani

WASHINGTON (Reuters) - Sales at retailers barely rose in April as the boost from an unseasonably warm winter faded, pointing to some loss of momentum in consumer spending early in the second quarter.

However, the Commerce Department report contained signs of underlying firmness in demand. Other economic data on Tuesday showed a rebound in New York state manufacturing this month and U.S. homebuilder sentiment at a five-year high.

Taken together, the reports calmed concerns the economy was stalling.

In addition, retreating gasoline prices, which put a lid on broader inflation pressures last month, should free money for discretionary spending by households in the months ahead.

"The economy continues to grow at a decent clip, but there are still a lot of risks coming from overseas," said Omair Sharif, an economist at RBS in Stamford, Connecticut.

Retail sales edged up 0.1 percent in April, held back by a decline in receipts from building materials and clothing stores. That was the smallest gain since December.

Manufacturing remained resilient, with a gauge of factory activity in New York state bouncing higher this month as new orders and shipments rose.

The New York Federal Reserve said its Empire State general business conditions index jumped to 17.09 in May from 6.56 in April, outpacing economists' expectations of 8.50.

Separately, the National Association of Home Builders/Wells Fargo Housing Market index rose to 29, the highest reading since May 2007, from 24 in April.

Lingering concerns over the debt crisis in Europe amid news that Greece could hold a new election blunted the impact of the data on U.S. financial markets.

Stocks on Wall Street fell for the eighth day in the past 10, while prices for U.S. Treasury debt were little changed. The dollar rose to a four-month high against major currencies.

WEATHER PAYBACK

Unusually warm weather pulled forward sales into January and February, resulting in first-quarter consumer spending rising at its fastest clip in more than a year. Consumer spending rose at a 2.9 percent annual rate.

Sales last month were mixed, with building materials and gardening equipment receipts falling 1.8 percent - the largest drop since January last year - after surging 2.7 percent in March.

Home Depot Inc also fell victim to the weather in April. The world's largest home improvement chain reported weaker-than-expected quarterly sales on Tuesday after demand slowed last month after earlier strength.

The payback from the warm weather was also evident in clothing stores sales, which dropped 0.7 percent after dipping 0.1 percent in March.

Clothing sales also were probably affected by an early Easter holiday, which brought forward spring purchases.

"Much of the slowdown was driven by a payback to unseasonably warm weather earlier this year," said Diane Swonk, chief economist at Mesirow Financial in Chicago.

Elsewhere in the report, auto sales increased 0.5 percent after rising 0.2 percent in March. Excluding autos, sales ticked up 0.1 percent after advancing 0.8 percent the prior month.

Sales at gasoline stations fell 0.3 percent as prices at the gasoline pump retreated from recent highs around $4 a gallon. Sales had increased 1.0 percent the prior month.

While the drop in gasoline prices contributed to holding back retail sales last month, this should boost spending in the months ahead by easing the burden on cash-strapped households.

So-called core retail sales, which exclude autos, gasoline and building materials, rose 0.3 percent after increasing 0.6 percent in March.

Core sales correspond most closely with the consumer spending component of the government's gross domestic product report, and April's gain was consistent with spending rising at a rate between 2 percent and 2.5 percent this quarter.

"The tone of the report was largely constructive and we expect consumer spending to remain supportive to the economic recovery going forward," said Millan Mulraine, senior macro strategist at TD Securities in New York.

The economy grew at a 2.2 percent rate in the first quarter but could be revised a bit lower as data on restocking by businesses was not as strong in March as the government had assumed when it published its initial GDP estimate last month.

The pullback in gasoline prices saw consumer prices unchanged in April after rising 0.3 percent in March. Stripping out food and energy prices, core CPI gained 0.2 percent, matching the increase posted in March.

(Additional reporting by Jason Lange and Leah Schnurr; Editing by Andrea Ricci and Kenneth Barry)

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