Gasoline pumpInvestors may have gotten some relief from strong gasoline and auto sales, which helped lift retail results overall and should ease some fears of a double-dip recession.

The Commerce Department's retail and food services sales tally for July rose to $362.7 billion, up 5.5% from July 2009 and up 0.4% from June. The month-over month increase was on target with most estimates.

That's a hopeful sign, after reports from the top retailers last week that were a letdown. Most retail observers had expected July sales to be 3% to 4% above last year's, but the average of the major retailers' tallies came in just below the bottom number. Most analysts blamed consumer malaise due to weak economic numbers and the continued scorching weather for wilting sales.

Losing Momemtum?

Excluding auto sales, Commerce Department totals were up 4.9% from the year-ago month, and retail sales only were up 5.9%. Commerce's tally is the most complete picture of retail, including gas, food and auto sales, as well as the results of Wal-Mart Stores (WMT), the world's largest retailer, which doesn't publicly report monthly sales.

Investors have been concerned that consumer spending is losing momentum, after a strong showing earlier in the year. Since the broadly defined consumer spending category accounts for up to 70% of the U.S. economy, a slowdown at the mall could drag down the recovery or even spark a double dip.

Auto dealers and gas stations were the strongest retailers in the latest report. July auto sales were up 8.9% year-over-year and 1.7% month-over month, while gas sales were up 12.2% and 2.3%, respectively. Most other retail sectors showed gains year-over-year but were down month-over-month, except department stores, which dropped 0.8% from last July and 1% from June.

Growing, but at a Slower Rate

"July was a bit of a mixed bag," says Kamalesh Rao, director of economic research for MasterCard SpendingPulse. He noted that while sales numbers have stabilized, growth rates look like they've lost a bit of momentum since the start of the year.

The month-over-month numbers show shoppers are slowing down, he said. MasterCard SpendingPulse tally, which includes sales via both credit cards and other payment systems, found sales excluding gas and autos were up 0.1% month-over-month and up 0.4% over last July.

"Keep in mind that total retail sales are growing, just growing at a slower rate," cautions Rao. That still leaves the U.S. economy with a thin cushion to soften any shocks, he notes.

Looking forward, Rao says August sales are the peak of the back-to-school season and should benefit from state-tax-free shopping holidays. But he adds that the question is whether economic fundamentals "will be able to do anything more than tread water," leaving shoppers with little reason to spend.

Too Hot to Shop?

Some retailers are already being cautious about their back-to-school forecasts. Although several polls point out parents plan to spend a bit more this year, they're also saying they'll shop carefully and postpone purchases to take advantage of clearances later in the fall.

As the second-quarter retail earnings reports began arriving this month, most merchants were guardedly optimistic but said they will mainly focus on fighting for market share in the fall.

Despite saying his company is expecting a healthy back-to-school season, Kohl's (KSS) Chairman Kevin Mansell says August should be the weakest month in the third quarter, when Kohl's expects comparable sales to rise in the 2% to 4% range. Both the economy and the record high temperatures have a hand on that, he says.

"It's still very hot," Mansell says. "That's not always a positive for August."

Increase your money and finance knowledge from home

Introduction to ETFs

The basics of Exchange Traded Funds and why ETFs are hot.

View Course »

Reading a Stock Quote

Learn to read the ingredients of a stock.

View Course »