Sales at U.S. Retailers fell by a smaller-than-expected margin in February after a surprise gain the prior month, as a rise in gasoline prices limited the impact of slumping vehicle sales, a government report showed on Thursday.

The Commerce Department said total retail sales eased 0.1 percent after rising by a revised 1.8 percent in January, previously reported as a 1.0 percent increase.

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.

Analysts polled by Reuters had forecast February retail sales falling by 0.5 percent. Excluding motor vehicles, sales had been predicted to ease by 0.2 percent.

Gasoline sales climbed 3.4 percent, the biggest rise 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.

Businesses slashed inventories at the wholesale level for a fifth straight month in January, a warning signal that companies likely will be cutting production even more to cope with a deepening recession.

The Commerce Department says wholesale inventories fell 0.7 percent in January, the longest stretch of declines since the last recession in 2001. Sales at the wholesale level dropped 2.9 percent in January, the seventh consecutive decline.

The inventory decrease was slightly smaller than the 1 percent fall economists had expected. It followed a 1.5 percent decrease in December that was initially reported as a 1.4 percent decline.

New orders for manufactured goods in January 2009 fell 1.9% from the prior month, to $351.9 billion.  Shipments and unfilled orders declined 1.7%, and inventories fell 0.8% from December 2008.

The government says the deepening recession caused worker productivity to slide by a worse-than-expected amount in the fourth quarter while wage pressures shot up at the fastest clip in two years.

The Labor Department said today productivity, the amount of output per hour of work, fell at an annual rate of 0.4 percent in the October-December period. At the same time, unit labor costs were surging by 5.7 percent.

While the combination of falling productivity and rising wage pressures would normally raise alarm bells about inflation, the threat of any resurgence of price pressures is seen as remote given the severity of the current recession.