The economy may not see a strong pick-up in growth in the second half of 2011 as the number of Americans filing for first-time jobless benefits remained high last week and retail sales barely rose in June.

But other data on Thursday showed a drop in energy costs, which caused wholesale prices to post their biggest fall last month in 1-1/2 years. That could lend consumer spending much needed support.

Initial claims for state unemployment benefits fell 22,000 to 405,000 last week, the lowest since mid-April, the Labor Department said. Economists expected claims to drop to 415,000. Still, claims held above the 400,000 level usually associated with a stable labor market.

Economists also cautioned against reading to much into the decline in jobless claims last week, which included the July 4 Independence Day holiday. Claims are volatile around this time of year because automakers normally shut plants for annual retooling.

There were fewer plant shut downs this year, however, after vehicle production was disrupted because of a shortage of parts from Japan in the aftermath of the March earthquake.

The economy is touch and go. You really need to take the improvement in claims with a grain of salt. It feels like the labor market is moving sideways, said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

We have numerous hurdles to overcome, and July data will be very telling.

Retail sales rose 0.1 percent as a rebound in receipts from auto dealers offset the biggest drop in gasoline receipts in a year, a Commerce Department report showed, after dipping 0.1 percent in May.

Core sales, excluding gasoline and autos, rose 0.2 percent after rising by the same margin in May.

MODEST BOUNCE BACK SEEN

The mixed retail sales report came on the heels of data last week that showed employment growth stalled in June, with nonfarm payrolls growing by only 18,000 jobs and the unemployment rate rising to 9.2 percent.

Federal Reserve Chairman Ben Bernanke on Thursday reiterated the U.S. central bank, which ended a $600 billion government bond-buying program in June, was ready to ease monetary policy further if growth and inflation slowed much more.

Economists said it was now looking less likely that the anticipated second-half pick-up would be as strong as initially thought.

Economists at JPMorgan lowered their third quarter gross domestic product (GDP) growth forecast to an annual rate of 2.5 percent from 3.0 percent. Their counterparts at Deutsche Bank said GDP would be lower than their 3.5 percent forecast.

We still expect that third-quarter growth will be better than the second-quarter as we still see a rebound in vehicle production and a decline in energy prices freeing up some consumer purchasing power, said JPMorgan's Michael Feroli.

To be sure, both of these positives are looking a little less shiny than they did a few weeks ago.

Second-quarter GDP growth estimates range between 1.5 percent and 2 percent. A Reuters survey published on Thursday forecast the economy expanding 3.1 percent in the third quarter.

U.S. stocks initially rose on the jobless claims and a higher-than-expected profit from JPMorgan Chase & Co but gave up gains in afternoon trade on views that there would be no immediate monetary stimulus for the economy. Prices for government debt rose.

JPMorgan, the second-largest U.S. bank, made more loans during the quarter than in the first quarter and added staff, signs other banks could be lending more and leading to further growth.

WEAK CONSUMER SPENDING

The U.S. economy has been hurt by high commodity prices and supply chain disruptions from Japan.

The retail sales report suggested that growth in consumer spending in the April-June period would be less than the 2.2 percent annual pace in the first quarter.

Another report from the Commerce Department showed business inventories were starting to pile up because of weak demand.

Inventories increased 1 percent in both May and April, suggesting restocking supported growth in the second quarter and will be less of a boost to third-quarter GDP.

But the drop in gasoline prices from their peak just above $4 a gallon in May should help to ease stretched household budgets and support spending in coming months.

The Producer Price Index fell 0.4 percent, the steepest decline since February 2010, the Labor Department said in a second report, after a 0.2 percent rise in May.

Excluding autos, retail sales were flat last month, the weakest reading since last July.

(Additional reporting by Pedro Nicolaci da Costa; Editing by Padraic Cassidy)

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