The nation's retail sales, a vital ingredient for recovery, dropped 0.4 percent in February, pulled down by a decline in auto sales, the Commerce Department said yesterday.

The latest figure, together with a revision that turned January into a decline, transformed what had appeared to be an overall upward trend into a three-month string of worsening totals for cash register activity.

January's sales were off 0.5 percent, instead of the originally reported 0.1 percent improvement. The last gain for retail sales was November's hefty 2.5 percent increase.

Two other government reports yesterday, however, indicated some improvement in the economic outlook.

* The Labor Department said that initial claims for unemployment compensation by jobless workers dropped to 460,000 in the week ending Feb. 26, the lowest weekly total since September 1981.

The new figure, which was adjusted to discount for normal seasonal variations in claims levels, was down from 502,000 the preceding week.

The overall national unemployment rate held steady in February, the department reported last week, but economists say continued declines in initial claims would bring the overall rate down at least slightly as recovery from the recession picks up steam.

* And the Commerce Department said the latest survey of business capital spending plans indicates somewhat more optimism than previous estimates.

Business officials plan to spend $310.9 billion this year on expansion and modernization, according to a survey in January and February--a 3.8 percent decline from last year after adjustment for inflation. A similar survey in November and December had projected a 5.2 percent decline in 1983 from the previous year.

Inflation-adjusted spending--that is, not counting costs due only to increased prices--dropped 5.5 percent last year in the first yearly decline since the 1975 recession.

The main change between the two figures, however, was due not so much to increases in spending estimates as to a reduction in the government's forecast for inflation this year.

Retail sales are being watched by economists because consumer spending is the main support beneath the extremely fragile recovery.

Total sales of retailers in February was $90.66 billion after adjustment to show changes beyond routine seasonal patterns. January's revised sales level was $91.03 billion.

Automobile sales dropped 2.4 percent to $15.99 billion in February, wiping out the strong 3.9 percent gain for the smaller category of construction materials, which reached a level of $4.48 billion for the month.

The report also said real spending dropped 4.2 percent in the final quarter of 1982 and that managers expect it to decline 0.7 percent in the first three months of this year and a like amount in the second quarter before beginning to rise in the second half of the year.

The February results for retailers were worse than many leading forecasters had predicted, although it has been evident for weeks that consumers were still confining their spending increases mainly to housing purchases.