U.S. retail sales in February fell much less than expected, but the strength was seen as fleeting amid a recession that's thrown millions of people out of work.

Retail sales decreased by 0.1% last month, the Commerce Department said Thursday. Excluding the effects of the volatile automobile and gasoline sectors, retail sales last month climbed a solid 0.5%.

"It looks like consumers are not holding back on spending as much as they did at the height of the credit crisis last fall," Wachovia Securities economist Gary Thayer said.

But the economy remains in poor shape, with 651,000 jobs lost in February - a massive drop that raised total employment losses since the recession began in December 2007 to 4.4 million.

Pink-slip fears in American households helped drive down spending July through December. Then, in January, after a miserable holiday season, sales surged 1.8%. And the February dip was much smaller than the drop of 0.4% expected by economists - a surprising show of strength.

But Ian Shepherdson, an analyst at High Frequency Economics, said, "It is also highly unlikely to last, given the latest downdraft in consumers' confidence and the continued pressure on incomes as payrolls collapse. It looks to us like little more than a temporary, though welcome, rebound after the astonishingly rapid plunge in (the fourth quarter)."

A separate report Thursday showed new claims for jobless benefits rose by 9,000 to 654,000 after seasonal adjustments in the week ended March 7. The Labor Department data showed the tally of continuing claims - those drawn by workers collecting benefits for more than one week in the week ended Feb. 28 - jumped by 193,000 to 5,317,000, the highest level since the government started keeping track in 1967. Continuing claims are up more than 2.5 million in the past year alone, a reflection of how hard it is for the unemployed to find new work.

"The U.S. consumer is faced with daunting fundamentals," MFR Inc. analyst Joshua Shapiro said.

Because of the bad job market, consumers are leery of big purchases. Automobile and parts sales in February plunged 4.3% and are down 23.5% year over year. Excluding autos in February, all other sales climbed 0.7% - much better than the 0.1% gain expected by economists.

Gasoline station sales, propped up by rising gas prices, gave a lift to the overall retail number. Last month, gasoline station sales climbed 3.4%. Gas sales rose 2.8% in January. Stripping away sales at gas stations, demand at all other retailers decreased 0.4% in February.

The retail sales report details how people spend their money. Consumer spending is a vital part of the economy, making up about 70% of gross domestic product, which is the broad measure of economic activity. Weakness in spending in recent months is both a cause and symptom of the recession. People didn't open their wallets because the stock market collapsed, home prices crashed, heavy household debt, and those layoff fears.

Data last week showed the savings rate in January reached a nearly 14-year high. The Commerce Department reported personal savings as a percentage of disposable personal income was 5.0%, the highest since 5.5% in March 1995 and up from 3.9% during December 2008.

The economy fell 6.2% at the end of 2008, the worst showing in almost 27 years. Companies losing revenue to the slump are cutting costs by firing people.

The rising unemployment rate is pushing up credit card charge-offs; those reached a new high of 7.74% in January. Uncollectible debt could lead banks to reduce credit lines to customers, which would chill spending and hurt the economy further.

Analysts said deep discounting could have had an impact on retail sales in February.

Excluding auto sales and gas station sales, all other retailers saw sales rise 0.5% in February.

Sales last month climbed 2.8% at clothing stores; 1.2% at electronic stores; 1.3% at general merchandise stores; 0.3% at mail order and Internet retailers; 0.6% at health and personal care stores; 0.7% at furniture retailers; and 0.2% at sporting goods, hobby, book and music stores.

Sales fell 0.2% at eating and drinking places; 0.7% at food and beverage stores; and 0.2% at building material and garden supplies dealers.

Paul Dales, an analyst at Capital Economics, said the numbers lend hope that GDP won't tumble in the first quarter as much as it did in the fourth quarter.

"February's retail sales figures suggest that consumers have returned to the shopping malls after the catastrophic holiday season," he said. "Nevertheless, it is too early to conclude that this marks the start of a sustained recovery."

A report by the Commerce Department said U.S. businesses shed inventories a lot in January. Inventories decreased by 1.1% to a seasonally adjusted $1.440 trillion. Business sales fell 1.0% to $1.004 trillion.

The inventory-to-sales ratio held steady at 1.43, Commerce said. The gauge indicates how well firms are matching supply with demand. It measures how long in months a firm could sell all current inventory. The ratio had been originally estimated at 1.44 in December but was revised to 1.43. The gauge had been 1.25 in January 2008. A rising I/S ratio can mean a big correction in inventories down the road. That could weigh on GDP in coming months. Therefore, the halt during January to the gradual rise over the past year is a promising sign, indicating businesses aren't letting inventories get out of hand amid the recession.

"Aggressive moves to keep inventories under control in the face of substantially weaker final demand will continue to contribute to weakness in orders, production, and imports as the cyclical downturn persists," MFR's Shapiro said.

 
   -By Jeff Bater, Dow Jones Newswires; 202-862-9249; jeff.bater@dowjones.com 
   (Brian Blackstone contributed to this story).