NEW YORK (CNN/Money) -
Automakers' "employee discount" incentives may have revved up overall retail sales in July, but some economists say widespread weakness in other categories could indicate that higher gas prices are beginning to weigh on consumer spending.
"This (consumer impact) is true when one excludes the effects of higher energy prices (which tend to boost overall spending since individuals spend more to fill up their gas tanks), and the one-time only special deals being offered by the Detroit automakers," J.P. Morgan senior economist Anthony Chan wrote in a comment e-mailed to CNN/Money.
"Outside of these components sales are softening a bit and certainly tell me that if oil prices continue to hover at these high levels, these temporary factors are unlikely to remain vibrant enough to continue to support such elevated levels of retail sales activity."
Looking forward, Chan believes that the effects of rising short-term interest rates combined with rising energy prices could hamper of economic growth in the months ahead and in 2006.
The Department of Commerce reported Thursday that overall retail sales last month rose 1.8 percent last month compared to a 1.7 percent gain in June. Economists surveyed by Briefing.com had forecast retail sales increased by 2 percent.
Stripping out the robust auto sales, retail sales also fell shy of analysts' estimates, rising a moderate 0.3 percent. Economists, on average, had expected an increase of 0.6 percent.
Ex-auto sales were revised up 1 percent in June from an initial reading of a 0.7 percent gain.
U.S. automakers broke all records last month as consumers rushed to dealerships to take advantage of the "employee discount" offered by the Big Three.
Car sales jumped 6.7 percent in July on the back of the deep incentives, leading the Commerce Department to make an alteration in how it records its seasonally adjusted sales data to better reflect last month's spike.
Michael Niemira, chief economist and director of research with the International Council of Shopping Centers (ICSC), thinks that the Commerce Department's adjustment to account for the huge gains in car sales could be a dominant story in next week's Consumer Price Index report, which is a broad read on retail prices.
"The Commerce Department's adjustment implies that there was a huge negative impact from the auto incentives, and without their adjustment, the rise in auto sales would probably have been closer to zero," said Niemira. "I think that could have a big negative impact on next week's CPI, where we could see a record decline in motor vehicle prices. This in turn could set us up for a very low CPI or even a decline."
"We could see a huge decline in motor vehicle prices which could impact the rest of the CPI," he said.
Sales at gasoline pumps climbed a strong 2.4 percent. Consumer electronics sales increased 1 percent last month.
But other retail categories struggled last month after coming off strong performances in June.
Clothing sales fell 0.5 percent after a 1.1 percent gain in June. Sales at furniture and home furnishing stores slid 1.3 percent after a 2.2 percent gain in June. Building material sales eased 0.4 percent.
Department stores suffered a 1.1 percent drop.
Said Niemira, "It's not entirely clear yet whether gas alone is causing consumers to pull back. On the one hand, we can argue that people were buying cars a lot, which uses gas.
"But other than in cars, there was a narrow band of strength elsewhere in July," he added. "My big concern would be that if gas prices are hurting spending, then it may not only just be the low-income consumers that are feeling the pinch, but moderate-income consumers as well."
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