US shoppers spent at a healthy rate in August, underpinning forecasts of faster growth, but consumer sentiment softened in recent weeks amid concerns over layoffs, reports released over the weekend showed.
A third report showed wholesale prices largely under wraps outside of increases in food and energy costs.
US retail sales rose a weaker-than-expected 0.6 per cent last month, the Commerce Department said. But economists still called it a solid advance that reflected paychecks fattened by recent tax cuts.
Separately, a closely watched gauge of consumer confidence from the University of Michigan slipped to a preliminary 88.2 in September from August's final 89.3, market sources said.
Economists said the sales report suggested the economy was on track to grow at a strong 4.5 per cent annual pace or better in the current quarter, but investors were disappointed.
Wall Street forecasters had expected a heftier 1.4 per cent sales gain and a rise in sentiment. Major stock indexes were down in early trade, while Treasury securities prices rose.
The government said the dollar value of auto sales rose just 0.5 per cent last month, after soaring 2.4 per cent in July. The latest gain contrasted with reports from automakers, who said unit sales surged about 10 per cent.
Economists said the discrepancy in the auto data - which led to the disappointment of investors - probably reflected aggressive sales incentives, which lowered prices.
Excluding auto sales, demand for retail goods rose 0.7 per cent, close to expectations.
The government uses unit auto sales to construct estimates of US gross domestic product and some economists said the report, which contained upward revisions to non-auto figures for June and July, implied the recovery had gained steam.
"Consumers are spending their tax cuts and the economy is going to be extremely healthy in the third quarter and the fourth quarter, and perhaps rolling into next year," said Doug Lee, who heads the consulting firm Economics from Washington.
Wall Street was unimpressed by the data, trading lower for much of the day before posting modest gains late in the session. The Dow Jones industrial average added 11.79 points to end at 9,471.55 and the high tech-laden Nasdaq composite index was up 8.94 points to 1,855.03.
Bond prices benefited as investors hedged their bets for the future, with the 30-year US Treasury bond rising 22/32s of a point to yield 5.16 per cent and the 10-year note ahead 16/32s and yielding 4.26 per cent.
In its report on wholesale prices, the Labour Department said the Producer Price Index for August rose 0.4 per cent. But the core PPI, which strips out volatile food and energy costs, rose just 0.1 per cent, underscoring a lack of underlying price pressures.
"Core PPI inflation is very much in the sweet spot, not too high and not too low," said John Lonski, chief economist at Moody's Investor Service.
The batch of reports will garner close attention from Federal Reserve officials, who gather tomorrow to plot interest-rate strategy.
Fed officials have acknowledged signs the economy is accelerating, but have said they remain concerned about the potential for already low inflation falling further, particularly since unemployment is relatively high.
They have said the benchmark overnight lending rate - currently at a 45-year low of one per cent - would likely remain low for some time.
The University of Michigan sentiment report spotlighted the main risk facing the economy: the potential for consumer spending to collapse if the moribund jobs market doesn't improve.
Confidence took a beating earlier this year in the build-up to the US-led war in Iraq, and its subsequent recovery appears to have stalled with unemployment stuck near nine-year highs and consumers worried about job security.
"Consumers have enjoyed a tax cut in the last six weeks and they sense that layoffs have stopped, but they haven't seen much new hiring and that's reflected in this report," said Cary Leahey, senior US economist at Deutsche Bank Securities.
"Ironically, people think it's a pretty good time to buy things, but that attitude could change if people start worrying about a new round of job cuts."