Retail sales fell in May for the first time in 11 months, dragged down by a sharp drop in receipts from auto dealerships, according to a government report that could raise fears of a prolonged economic slowdown.

U.S. producer prices rose more than expected in May but the pace of increases eased from prior months as the climb in energy costs slowed, according a report on Tuesday.

COMMENTS:

GENNADIY GOLDBERG, US FIXED INCOME ANALYST, 4CAST LTD, NEW YORK

(Retail sales) came essentially on market expectations, net of revisions. Stocks are taking this very positively and Treasuries are taking this as a hint that things may not be quite as weak as they expected. This hints that the soft patch may be temporary. There is further data in the week, which will hopefully tell us more about that. The Philly Fed and Empire State will give us a more fresh picture about what's going on, because they are for June.

ROBBERT VAN BATENBURG, HEAD OF GLOBAL RESEARCH, LOUIS CAPITAL MARKETS, NEW YORK

RETAIL SALES: Building materials got some boost from a delayed effect from the spring selling season due to bad weather.

Motor vehicles declined due to the situation in Japan. You also have bloated inventories with SUVs.

You could see a lot of fire sales from retailers.

You have high gasoline prices and lackluster job growth. It doesn't look good. It doesn't feel good at all with the general consumer picture. If you want a feel-good story, you wouldn't be looking at the American consumers.

MICHAEL FARR, PRESIDENT OF FARR, MILLER & WASHINGTON IN WASHINGTON, D.C.

The consumer isn't dead. Spending continued, and at a little better pace than expected. I question the sustainability given the high levels of debt that consumers hold and the unemployment rate, but we don't want to look a gift horse in the mouth. It's good news for the day, and further evidence that while perhaps not robust, the recovery is bumping along in fits and starts.

I think we're seeing a dead cat bounce. The market is finally coming to a reckoning to deal with the world without hundreds of billions of dollars of government support. It's finding the proper level without the artificial stimulus. This could take a while. It could take time before the market finds a new bottom.

OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON: PRODUCER PRICE INFLATION

The year-over-year reading saw a pretty big jump and was well over expectations. The balance of data was decent, yields went up and the dollar followed against the yen.

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

The 0.2% rise in May's overall PPI was a little firmer than an unchanged consensus but the upside surprise appears largely due to the survey coming a little too early to catch recent declines in energy prices. Food prices were softer and the 0.2% rise in the core rate ex food and energy was in line with consensus and a little softer than recent trend. While intermediate PPI inflation remains firm, crude prices were softer. This is not a report that is going to increase inflationary concerns at the Fed....Core inflationary pressures have picked up in early 2011, but May's data suggests they are no longer accelerating.

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

Although autos posted their largest decline since February of last year (last month down 0.7%), car sales are still up 5.4% from May 2010. Overall, sales are 7.7% higher than total transactions conducted 12 months ago. April's figures were revised downwards as sales grew a smaller 0.3% (had been 0.5%), also on softer sales data (auto sales down 0.7% as opposed to having been up 0.2%). April and May represent below trend performances (since August sales had growth rounding to 1%) contributing to bleak assessments of the recovery's strength. A slight majority of retail outlets experienced lower sales volumes. Food and beverage sales fell 0.5%, yet just as influential building material sales grew 2.1%. Gasoline sales were up 0.3%.

MARKET REACTION: STOCKS: U.S. stock index futures add gains. BONDS: U.S. bond prices extend losses. FOREX: The dollar rises versus the yen.

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