Thursday's economic reports on retail sales and jobless claims showed modest improvement, but are unlikely to stop the Federal Reserve from cutting interest rates later this month, economists said. Retail sales rose 0.1% in May, following a revised 0.3% decline in April, the government reported. Excluding autos, sales rose 0.6% in May after a 0.4% drop in the previous month. Meanwhile, initial jobless claims fell by 17,000 to 430,000. The four-week average of claims -- which adjusts for volatility -- rose to 433,750 from the previous week's revised average of 431,500. A level above 400,000 claims is consistent with strain in the labor market. "The labor market is still in a funk," said Brian Jones, an economist at Salomon Smith Barney. "But the retail sales numbers were very encouraging, considering what could have been printed after the miserable weather conditions we had. The economy is gaining momentum going into the third quarter." Jones still expects the Fed to cut rates on June 25, however. "They are in it now," he said. Fed fund futures, a proxy of monetary policy, were lately pricing in 100% chances of a 25-basis-point cut at the next FOMC meeting and 50% odds of a 50-basis-point cut. "I don't think the reports changed anyone's minds about a rate cut at the end of the month," said Holly Liss, a market strategist at Mizuho Futures, adding that producer price data on Friday could be more critical for the Fed, which has had its eye keenly on the risk of deflation. "If the PPI comes in below expectations, you could see more people calling for a 50-basis-point cut," she said. Within the retail sales report, there were decent gains in furniture, up 1.1%. Electronics stores were ahead 2.9%, clothing stores higher by 1%, and general merchandise stores up 0.7%. Sales at auto dealers, gas stations, and food and beverage markets declined in May, the government said. The retail sector was showing modest gains on the news Thursday, with the S&P Retail Index higher by 1.1%. Lowe's ( LOW) was up 21 cents, or 0.5%, to $44.33, Limited ( LTD) was ahead 5 cents, or 0.3%, to $16.15, and Target ( TGT) was up 3 cents, or 0.1%, to $37.83.