Washington: US retail sales fell a steeper than expected 0.9 per cent in May, the government said on June 13, prompting concerns about the pace of the US economic recovery.

The decline followed a 1.2 per cent rise in April and was the biggest drop in retail sales since November. It also was steeper than expected by Wall Street economists.

The drop prompted economists to question their assumptions for the recovery of the US economy as it emerges from recession, since consumer spending represents about two-thirds of gross domestic product.

"This release will shake investor confidence that consumption is going to remain a pillar of the economic recovery," said Sung Won Sohn, chief economist at Wells Fargo.

"Weaker consumption means more trouble for corporate profits and may mean a return of business investment could be put on hold."

"A variety of non-auto categories came in weaker than expected," said Henry Willmore of Barclays Capital.

"Some of this might represent 'giveback' from robust April results. Nevertheless, we are trimming our estimate of second-quarter real consumption growth from 2.5 per cent to 1.5 per cent.

"We are leaving our estimate of second-quarter Gross Domestic Product (GDP) growth at 5.0 per cent because these data may tell us more about the mix between final sales and inventories than overall growth. The data do suggest some clear downside risks to our strong near-term outlook."

"The sharp decline in May retail sales raises the key question of whether the pace of consumer spending is slowing disconcertingly, or whether May was just an off month where a number of things just went the wrong way," said Anthony Karydakis of Bank One.

"There are no easy answers regarding the true significance of the disappointing sales in May, as it will take next month's report to clarify things a little."

"I just don't know what to make of this report," said Joel Naroff of Naroff Economic Advisors. "It was weak, there is no doubt about it. But some of the weakness seems way overdone. How much the consumer paused, though, we will have to wait and see."

The report said that excluding autos, retail sales were off 0.4 per cent in May after rising 1.1 per cent in April. This is the largest decline since September.

Excluding gasoline, retail sales fell 0.7 per cent in the month, after a 1.0 per cent rise in April.

So-called "core" retail sales, or sales excluding autos and gasoline, fell 0.1 per cent in May after being up 0.8 per cent in April, marking the first decline since September.

Treasury Secretary Paul O'Neill said US economic fundamentals remain solid, but a stronger business investment rebound will be needed to sustain the economy's recovery from recession.

"We need to see more business investment to maintain the recovery," O'Neill said in remarks to the National Federation of Independent Business.

"There are signs that business investment is picking up," O'Neill said.

He noted that declines in business investment have been narrowing, after non- residential fixed investment fell 8.2 per cent in the first quarter, marking the smallest drop in a year.

"Overall, the fundamentals of our economy continue to be strong," O'Neill said.

Separately, the government said US producer prices, a measure of inflation at the wholesale level, fell 0.4 per cent in May and that the core rate excluding food and energy prices was unchanged.

The tame pace of inflation is likely to allow the Federal Reserve to keep interest rates low to help stimulate more growth.