July Retail Sales Sizzle

Retail sales sizzled in July, but were fueled largely by strong demand for automobiles, according to figures released Thursday by the Commerce Department.

Retail sales posted on 0.7 percent rise, bouncing back from a downwardly revised 0.2 percent decline in June. A panel of economists surveyed by CBS.MarketWatch.com had produced a consensus estimate for a 0.4 percent rise.

But excluding the auto sector, retail sales were up 0.3 percent, slightly below consensus expectations for a 0.4 percent increase. Excluding autos, sales were up 0.1 percent in June.

The report said automotive dealers saw sales rise by 2.3 percent in July, rebounding from a 0.8 percent decline in June. Overall, sales of durable goods items increased 1.6 percent, the department said, while sales of nondurable items notched a 0.2 percent gain.

Consumers continued to eschew new clothes, according to the data. Apparel sales posted a 0.4 percent decline in July, matching the fall seen in June.

The strong overall retail sales figure gives no signs consumers have are clutching their wallets tighter despite signs the Federal Reserve is likely to further increase interest rates, perhaps as soon as the next meeting of its policymaking Federal Open Market Committee later this month.

But the data itself may not significantly stoke rate fears, given the downward revision to the June figures and the milder pace of sales growth once autos are stripped out of the equation.

In the meantime, markets are expected to remain focused on upcoming economic data, particularly the key July Producer Price Index (PPI) and Consumer Price Index (CPI), for further clues as to Fed action.

July PPI is set for release Friday and is expected to show an overall rise of 0.3 percent; core PIP, which excludes the volatile food and energy sectors, is expected to show a 0.1 percent rise.

Rate hike fears have mounted in recent weeks, fueled by economic data showing a stronger-than-expected rise in employee compensation costs and the July employment report, which showed strong jobs growth and a stronger than expected rise in average hourly earnings -- a possible sign that wage-induced inflationary pressures could eventually surface.

Rate worries were somewhat tempered, but certainly not banished, by Wednesday's so-called Beige Book report from the Federal Reserve. The brief, which is used by the central bankers to prepare for policy meetings, noted no signs of a broad pickup in consumer inflationary pressures, despite extremely tight labor markets.

Written By William L. Watts, CBS MarketWatch