Sales at retailers unexpectedly fell in May for the first time since September, pulled down by a record slump in purchases of building materials, according to a government report on Friday that added to fears the economic recovery was losing some muscle.

The Commerce Department said total retail sales dropped 1.2 percent, the largest decline since September, after rising by an upwardly revised 0.6 percent in April. Sales in April were previously reported to have increased 0.4 percent.

Retail sales had risen for seven straight months.

Analysts polled by Reuters had forecast retail sales rising 0.2 percent last month. Compared to May last year, sales were 6.9 percent higher.

COMMENTS:

KEVIN FLANAGAN, CHIEF FIXED INCOME STRATEGIST WITH MORGAN STANLEY SMITH BARNEY IN PURCHASE, NEW YORK:

Retail sales is a weak number. There's no getting around the fact you saw some consumer retrenchment in the month of May.

The number is going to call into question the strength of consumer spending for the second quarter.

The unemployment rate is still close to 10 percent. We are not producing enough jobs.

You are certainly seeing an improved tone in the Treasury market.

CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO/MITSUBISHI, NEW YORK:

The innards of the May retail sales report were better than the headline. The series was dragged down by gasoline sales and a huge 9.3 percent drop in building materials in May. The reason the drop in building materials sales is not a worry is they rose 8.4 percent in April and 8.1 percent in March. The data are choppy month to month.

The report is not evidence that the economy is getting ready for a double-dip or that consumers, facing headwinds of double-digit unemployment and bank credit restriction, are taking their ball and going home.

Bonds are following stocks. Bonds caught a bid when stocks turned lower after the retail sales report.

HUGH JOHNSON, CHIEF INVESTMENT OFFICER, JOHNSON ILLINGTON ADVISORS, ALBANY, NEW YORK:

These are very disappointing numbers, and to some extent unexpected. Although (many) of us had forecast some decline, we had not forecast a decline of this magnitude. It's an indication that consumers are still choosing to increase their savings and reduce their borrowing and spending because their balance sheets are leveraged, and they are very concerned about the economy given conditions in the stock market and employment conditions.

You can explain part of the decline, but it still indicates consumers are choosing to play it safe...at a time when the outlook for the economy remains very uncertain.

JOHN DOYLE, FOREIGN EXCHANGE STRATEGIST, TEMPUS CONSULTING, WASHINGTON:

Obviously, the numbers have disappointed some, but we kind of expected retail sales to be down as consumers boosted their own savings and that correlated also to a fall in the stock market. I suspect the dollar will continue to be range-bound against most of its trading partners. I think the dollar can consolidate down here in these new ranges before breaking higher against most currencies toward the end of the summer.

JOE SALUZZI, CO-MANAGER OF TRADING AT THEMIS TRADING IN CHATHAM, NEW JERSEY:

This is a big number -- retail sales is what drives the engine if you believe 70 percent of the economy is consumer based. That is not good - how are you ever going to get the economy going?

That is not good at all. What is going on really and you can see evidence of it - savings rates are going up, people are paying off debt, they are tired of getting in these risky assets, so they are taking in the excess money and they are going to pay off their debt. Which is a good thing in the long run but in the short run it is going to really hurt GDP and it's going to really hurt the economy. The most disturbing part is all the stimulus that's been thrown in and you still can't get these numbers up, that is really, really bad.

PIERRE ELLIS, SENIOR GLOBAL ECONOMIST, DECISION ECONOMICS, NEW YORK:

It's not quite bad as it looks because of the big drop in sales of building materials. It's definitely a softer consumer picture but it's not as bad as what the headline number indicates. The general pattern is not too far beyond the shakiness of spending with what we have been seeing lately given the economy just getting on its feet. You may see some people taking down their second quarter GDP forecast after this.

PETER KENNY, MANAGING DIRECTOR AT KNIGHT EQUITY MARKETS IN JERSEY CITY, NEW JERSEY:

Disappointing. Clearly the market doesn't like it because it confirms last Friday's jobs report number, which was definitely disappointing. However, let's not read too much into this. I don't think it affects the bigger picture and the themes for today, which is the euro and gold. Those will be driving the market today. Not the six-tenth of one percent from expectations. We can't look at one datapoint for market sentiment for the day.

MARKET REACTION:

STOCKS: U.S. stock index futures turned negative

BONDS: U.S. Treasury debt prices added to gains

DOLLAR: U.S. dollar falls

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