The number of U.S. workers drawing unemployment benefits hit a record in February as companies struggle with a 14-month recession, data showed on Thursday, but a slight easing in retail sales last month offered cautious optimism.

The Labor Department said the number of people remaining on the benefits roll after drawing an initial week of aid rose by 193,000 to a record 5.317 million in the week ended February 28, the most recent week for which data is available.

At the same time, new applications for state unemployment insurance benefits increased to a seasonally adjusted 654,000 in the week ended March 7, from 645,000 the week before.

It confirms the labor market is deteriorating further in March. Layoffs are stepping up further and we are seeing there is no corresponding pickup in new hiring. This is very bad momentum into this downturn, said Pierre Ellis, a senior global economist at Decision Economics in New York.

U.S. stocks shrugged off the labor data, focusing instead on the smaller-than-expected drop in retail sales in February, while bond prices pared gains.

Sales at U.S. retailers eased 0.1 percent after rising by a revised 1.8 percent in January, the Commerce Department said.

Excluding motor vehicles and parts, sales increased 0.7 percent in February, compared to a 1.6 percent advance the previous month. Vehicle sales plunged 4.3 percent, after a surprise 3.1 percent rise the prior month.

There's stability in these numbers, particularly when you strip out autos and gas. So clearly the consumer is not completely knocked out, said Michael Woolfolk, senior currency strategist at the Bank of New York-Mellon in New York.

The difficulty, though, is we still need jobs growth and credit markets to thaw out before we can have a normal recovery.

Households, buffeted by rising unemployment and plummeting asset values, have become penny-pinchers and are shunning big-ticket items such as cars.

Consumer spending, which constitutes over two-thirds of U.S. economic activity, dropped at a 4.3 percent rate in the fourth quarter, the biggest fall since the second quarter of 1980. That contributed to the economy's 6.2 percent annualized pace contraction in the October-December quarter.

With the economy continuing to bleed jobs, analysts reckon consumer spending will stay depressed in first quarter of this year. The unemployment rate rose to 8.1 percent in February, its highest level in a quarter of a century.

Gasoline sales climbed 3.4 percent in February as prices rose -- the biggest gain since November 2007 -- after increasing by 2.8 percent in January. Sales of building materials dipped 0.2 percent in February after slipping 1.3 percent in the prior month.

Excluding both motor vehicle and gasoline sales, retail sales rose 0.5 percent in February after a 1.4 percent rise in January. On year, retail sales were down 8.6 percent overall, and 5.0 percent excluding motor vehicles.

(Additional reporting by Alister Bull in Washington and Richard Leong and Steven Johnson in New York, Editing by Andrea Ricci)

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