Retail sales recover in July

Sales rise 0.3 percent last month, slightly better than forecasts; non-auto sales also top estimates.

NEW YORK ( -- Back-to-school discounts helped retailers boost their sales last month, the government reported Monday, and the moderate gain should help allay fears - for now - that housing and credit woes could throttle consumer spending.

The Commerce Department said retail sales rose 0.3 percent last month after falling 0.7 percent in June.

Economists surveyed by had forecast a 0.2 percent gain in July

The sales rebound is significant since consumer spending fuels two-thirds of the nation's economy.

The moderate July sales gain also bodes well for retailers at the start of the back-to-school season, which is their second most-important selling period after the fourth-quarter holiday season.

What's more, Wall Street suffered a turbulent week last week as investors feared that growing credit problems and the turmoil in the mortgage market was spreading and could threaten consumers' ability to spend in the months ahead.

However, one industry watcher said the July retail sales report should help soothe those fears for the time being.

"Today's retail sales report revealed upward May and June revisions that pushed the July data above expectations, and boosted both the second-quarter and third-quarter outlooks for consumption and GDP," Mike Englund, chief economist for Action Economics, wrote in a report Monday.

"With some market participants looking for evidence of housing contagion in today's report, the figures are likely to contribute to further stabilization in the financial markets given that the gains extend the sales trajectory along a "business as usual" path," he said.

Excluding autos and auto parts, which can be volatile from month to month, sales also rose a slightly better-than-expected 0.4 percent in July compared to a revised 0.2 percent dip in June. Economists had forecast a 0.3 percent increase in ex-auto sales.

In keeping with back-to-school shopping trends, the report showed that Americans, still feeling confident about their income and job prospects, continued to shop for clothes, electronics and furniture.

Among the biggest gainers, clothing stores logged a strong 1.3 percent sales increase in July, electronics sellers posted a 1.0 percent gain and furniture stores increased their sales 0.5 percent last month.

Elsewhere, department stores also posted an impressive 1.6 percent sales increase last month. Sales at general merchandise sellers jumped 0.9 percent and grocery stores logged a 0.5 percent increase.

There were some weak spots, however. Auto sales dipped 0.3 percent while sales at gasoline stations fell 0.8 percent.

The July sales report comes on the heels of last week's mixed July same-store sales numbers. Same-store sales are an important measure of retailers' sales at stores open at least a year.

Those numbers showed that July was a disappointing month for some merchants, especially teen clothiers although same-store sales at discounters Wal-Mart (Charts, Fortune 500) and Target (Charts, Fortune 500) and department stores including J.C. Penney (Charts, Fortune 500) were better than expected. Top of page