WASHINGTON — Falling energy prices, lower interest rates and tax rebate checks are expected to lift the economy in the second half of the year.

        Economists said a new report Friday showing the biggest drop in wholesale prices in more than two years, led by falling energy costs, helped renew rebound hopes.

        “There is reason to be optimistic about the economy's prospects,” said Ken Mayland, an economist at ClearView Economics in Cleveland.

        Record declines in June in residential electricity and natural gas prices and a big drop in gasoline costs fueled the 0.4 percent decrease in the Labor Department's Producer Price Index, which measures price pressures before they reach consumers. It was the best performance on wholesale inflation in 28 months.

        Economic growth slowed since last summer. Analysts expect growth in the April-June quarter will come in at a weak annual rate of 0.5 percent — worse than the 1.2 percent growth for the first three months of the year.

        But economists think consumers will keep the economy out of a full-blown recession by increasing spending, reflecting the tax cut and lower interest rates.

        “The tax cut will be arriving just in the nick of time,” said Bruce Steinberg, chief economist with Merrill Lynch.

        A surge in job losses hasn't made consumers totally close their wallets. A second report Friday showed retail sales rose 0.2 percent in June, pushed up by a strong 1.5 percent surge in new car sales.

        Restaurants and electronic, drug, appliance and general merchandise stores also posted good gains. But sales were weak at apparel, sporting goods and grocery stores. Service-station store sales fell sharply, reflecting the drop in gas prices.

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