US retail sales jumped 1.8% last month as buyer incentives led to the biggest gain in car sales since just after the September 11, 2001, attacks, the latest government report shows.
A separate report showed a surprise drop in claims for jobless benefits last week that took a key gauge on the pace of layoffs down to its lowest level since late February.
July's retail sales jump, which fell short of Wall Street forecasts, followed a similarly healthy 1.7% rise in June, the Commerce Department said. Excluding cars, retail sales rose a modest 0.3% last month - also below forecasts.
Economists said the report, nonetheless, put an exclamation mark on a string of data showing the economy moving ahead at a rapid clip. Analysts said the show of consumer muscle would keep the Federal Reserve on its path of 'measured' rate hikes to keep inflation at bay.
Car sales shot up 6.7% last month as Ford and DaimlerChrysler joined General Motors in extending employee discounts to all consumers. It was the biggest gain since flag-flying carmakers put in place 0% financing deals in October 2001.
The unusual July sales incentives led the department to alter the way in which it smooths the data for seasonal factors. Without the change, the reported car sales gain would have been slimmer.
A sharp rise in petrol prices gave a boost to gas station sales, which rose 2.4%. Excluding both cars and petrol, retail sales would have been unchanged in July however.
Today's report showed a sharp 1.3% drop in furniture sales after a 2.2% jump in June. Building material sales slipped 0.4%. But sales at electronics, health and sporting goods stores moved higher.
Separately, the Laboir Department said the ranks of Americans filing initial claims for state unemployment benefits thinned by 6,000 last week to 308,000. The drop, which defied Wall Street expectations for a rise to 315,000, brought a four-week moving average of claims - a closely watched barometer of the pace of layoffs - down to 309,250, its lowest level since late February.
