The rise in sales came after a brisk 1.3 percent advance in July and marked the fourth month in a row that sales went up, the Commerce Department reported Friday.
August's sales performance, however, was weaker than the 1.5 percent gain that economists polled by CBS MarketWatch had predicted.
Still, sales gains were fairly broad-based, with shoppers spending to buy cars, furniture, appliances and electronics. Excluding sales of automobiles, sales at other merchants rose by 0.7 percent in August — close to economists' predictions for a 0.8 percent rise.
Meanwhile, wholesale prices for food and energy moved higher in August, but inflation was tame elsewhere, the Labor Department said Friday.
The producer price index rose 0.4 percent in August, with the biggest increase in energy prices: They jumped 1.2 percent, the third straight increase. Food prices rose 0.7 percent. Excluding food and energy goods, core producer prices rose a modest 0.1 percent.
Inflation at the wholesale level was a bit stronger than anticipated by Wall Street economists, whose consensus forecast called for a 0.3 percent rise in the PPI and a flat reading in the core rate, reported CBS MarketWatch's Rex Nutting.
Consumers, whose spending accounts for roughly two-thirds of all economic activity in the United States, have kept the economy going since the 2001 recession. And they will play an important role in determining how vigorous the anticipated rebound in the second half of this year will be.
The PPI report isn't likely to settle the debate over the relative risks of inflation and deflation, reports MarketWatch.
One side will point to the rising rate of producer prices for evidence that deflation isn't a worry, while the other will argue that the falling core rate shows the danger posed by too much idle capacity in the global economy.
The PPI is a sideshow to the debate in any case; it's consumer prices that matter most to economists and policymakers. The Labor Department will report on the August consumer price index next Tuesday.
Some economists believe growth in the final six months of this year will clock in at a rate in the range of around 3.5 percent to just more than 4 percent. Others think it will be closer to a 5 percent pace. Either scenario would be better than the 2.3 percent growth rate seen in the first six months.
Against that backdrop, the Federal Reserve is likely to hold a key short-term interest rate at a 45-year low of 1 percent when it meets on Sept. 16, economists said. At the Fed's last meeting in August, policy-makers left that key rate unchanged and hinted that it could stay at the current level for some time.
Larger paychecks and other incentives coming from President Bush's third tax cut left people with extra money to spend and contributed to the brisk gain in retail sales in July, economists said. Because July's sales were so good, some economists believed that August's sales would have to show a bit of a slowdown.
In August, sales of automobiles and parts rose by 0.5 percent, down from a 2.4 percent advance in July. At electronics and appliance stores, sales increased 1.4 percent last month, down from a 1.6 percent gain the previous month. Health and beauty stores saw sales rise by a modest 0.3 percent in August, compared with a 1.1 percent jump in July. Department stores sales went up 0.4 percent last month, compared with a 1.2 percent increase in July
Sales at sporting goods, books, music and hobby stores shot up by 1.5 percent in August, a turnaround from July's 0.6 percent decline. At bars and restaurants, sales rose 1.4 percent, up from a 0.5 percent rise in July.
At clothing stores, sales fell 1.4 percent, reversing July's 1.2 percent gain. Sales of building and garden supplies dipped 0.2 percent last month, compared with a 1.6 percent advance in July.