Adds details from reports, analyst comments throughout

By Lucia Mutikani

WASHINGTON, May 15 (Reuters) - U.S. retail sales growth slowed sharply in April as the boost from households front-loading motor vehicle purchases ahead of tariffs faded and consumers pulled back on spending elsewhere against the backdrop of an uncertain economic outlook.

The apprehension over the economy's prospects, sparked by President Donald Trump's on-again, off-again tariffs policy, was underscored by retail giant Walmart WMT.N, which on Thursday joined the list of companies, ranging from airlines to auto manufacturers, that have either withdrawn or refrained from giving financial guidance.

Wholesale prices for services like airline tickets and hotel rooms fell last month, other data showed, also flagging softening demand, which does not bode well for an anticipated rebound in growth this quarter after the economy contracted in the January-March period for the first time in three years.

Producer prices for goods excluding the volatile food and energy components increased by the most in more than two years while retail and wholesale margins declined, which economists warned could lead to reduced business spending and hiring.

"We are now witnessing the first-order effects of tariffs on the economy through reduced spending," said Tuan Nguyen, a U.S. economist at RSM US. "While a recession is no longer our base case over the next 12 months due to the recent reduction in tariffs, the likelihood has increased that the U.S. economy will experience several quarters of sluggish growth."

Retail sales edged up 0.1% last month after an upwardly revised 1.7% surge in March, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would be unchanged after a previously reported 1.5% jump in March. Sales increased 5.2% on a year-over-year basis in April.

Retail sales have see-sawed this year amid Trump's announcements of import duties. Though Washington and Beijing struck a 90-day truce in their trade war last weekend, slashing tariffs on imports, uncertainty remains over what happens thereafter.

Sales at auto dealerships dipped 0.1% after accelerating by 5.5% in March. Receipts at sporting goods, hobby and musical instrument stores slumped 2.5%. Sales at miscellaneous store retailers tumbled 2.1%.

Online retail store sales rose 0.2%. Receipts at food services and drinking places, the only services component in the report, increased 1.2% after rebounding by 3.0% in March.

Economists view dining out as a key indicator of household finances. An analysis of Bank of America credit card data suggested most households remained financially sound, thanks to a resilient labor market characterized by low layoffs.

Bank of America Institute, however, noted "we see some increase in the share of households making only the minimum payment on their credit cards, suggesting building pressures for some households."

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury yields declined.

WEAK UNDERLYING SALES

Retail sales excluding automobiles, gasoline, building materials and food services fell 0.2% after gaining 0.5% in March. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Consumer spending ended the first quarter on a strong note, putting consumption on a higher growth trajectory heading into the second quarter. Nonetheless, the core retail sales drop in April posed a downside risk to economists' expectations for a rebound in economic growth this quarter. GDP contracted at a 0.3% annualized rate in the first quarter.

A separate report from the Labor Department showed the Producer Price Index for final demand dropped 0.5% in April as the cost of services declined by the most since 2009, pulled down by ebbing demand for air travel and hotel accommodation.

The PPI was unchanged in March. Economists had forecast that it would rise 0.2%. In the 12 months through April, the PPI increased 2.4% after climbing 3.4% in March.

In addition to his protectionist trade policy, Trump has cracked down on immigration and repeatedly expressed his desire to make Canada the 51st U.S. state and acquire Greenland. Those actions have been followed by a sharp drop in tourism, with lower airline ticket sales and hotel and motel bookings.

Wholesale services prices decreased 0.7%, the largest decline since the government started tracking the series in December 2009, after rising 0.4% in March. Prices for hotel and motel rooms dropped 3.1% after easing 0.5% in March. Portfolio management fees plunged 6.9%, while airline fares fell 1.5%.

Core goods prices rose 0.4%, the largest gain since January 2023, indicating goods producers were passing on the tariffs. But margins received by wholesalers and retailers fell 1.6%.

"While a decline in margins might be positive for the near-term pass-through of tariffs into inflation, it is not positive for the overall economic outlook," said Michael Hanson, an economist at J.P. Morgan. "A reduction in margins will weigh on business spending on capital investments and possibly hiring."

Based on the PPI data and tame consumer price readings in April, economists estimated the core Personal Consumption Expenditures (PCE) Price Index edged up 0.1% after being unchanged in March.

The core PCE price index is one of the inflation measures tracked by the Federal Reserve for its 2% target. It was forecast to have increased 2.5% on a year-over-year basis in April after rising 2.6% in March.

But with retailers like Walmart and automakers including Ford Motor raising prices in response to tariffs, any moderation in inflation is likely to be temporary.

Fed Chair Jerome Powell warned on Thursday that "we may be entering a period of more frequent, and potentially more persistent, supply shocks - a difficult challenge for the economy and for central banks."

Economists expected the U.S. central bank would resume cutting interest rates either in September or December. The Fed left its benchmark overnight interest rate in the 4.24%-4.50% range earlier this month.

"The slowdown in inflation in April provides little comfort as the impact from tariffs is yet to come," said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. "Despite the de-escalation with China, the trade story isn't over, and it's still going to take time for tariffs to make themselves felt in economic data."

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Nick Zieminski and Paul Simao)

((Lucia.Mutikani@thomsonreuters.com))