WASHINGTON – U.S. retail sales edged up in July despite a drop in auto sales. A category of purchases that excludes the most volatile areas rose by the most in seven months, a sign that consumer spending could boost economic growth in coming months.

The Commerce Department said Tuesday that retail sales increased 0.2 per cent in July from June. Sales had risen 0.6 per cent in June from May on a surge in auto sales.

“Core” retail sales, which exclude the volatile auto, gas and building supply categories, rose 0.5 per cent in July. It was the biggest such gain since a similar increase in December.

Retail sales are closely watched because they’re the government’s first report each month on consumer spending, which accounts for 70 per cent of U.S. economic activity.

Tuesday’s report is “consistent with a decent acceleration” in consumer spending in the current July-September quarter, said Paul Dales, senior U.S. economist at Capital Economics.

Dales suggested that consumer spending, which rose at an annual rate of 1.8 per cent in the April-June quarter, could grow at a 2.5 per cent annual rate or better in the current July-September quarter.

“Households may be spending a bit more freely in response to the recent gains in employment, equity prices, house prices and the modest loosening in credit,” Dales said.

A separate report Tuesday showed that Americans are reducing their credit card debt. It’s a trend that could further strengthen consumers’ financial security and boost their spending over the long run. The rate of credit card payments at least 90 days overdue fell in the April-June quarter to 0.57 per cent, according to credit reporting agency TransUnion. It’s the lowest delinquency rate since 1994.

And the Commerce Department said business stockpiles were unchanged in June while sales rose modestly. That could mean that companies will need to step up their restocking in coming months, which would help boost economic growth.

Sales at department stores rose 0.6 per cent in July, rebounding from a 1.2 per cent drop in June. A broader category of general merchandise, which covers big retailers such as Wal-Mart and Target, rose 0.4 per cent after no change in June.

Purchases at gasoline stations rose 0.9 per cent, an increase that partly reflected higher pump prices. Excluding gasoline, retail sales would have risen 0.1 per cent in July.

Sales at clothing stores rose 0.9 per cent, and they increased 0.6 per cent at grocery stores and restaurants. At furniture stores, sales fell 1.4 per cent. Purchases at building supply and appliance stores also weakened.

The U.S. economy grew at lacklustre annual rates of 1.1 per cent in the January-March quarter and 1.7 per cent in the April-June quarter. But many economists think growth will rebound in the second half of the year to an annual rate of roughly 2.5 per cent.

Optimism stems, in part, from the notion that consumer spending will strengthen for the remainder of the year as the effects of this year’s tax increases and spending cuts start to fade. Economists also think consistently improving home sales and higher stock prices will make people feel more comfortable spending money in stores.

Steady job growth will help, too. In July, the unemployment rate fell to a 4 1/2-year low of 7.4 per cent, from 7.6 per cent in June, though employers added only a modest 162,000 jobs.

One weakness in July was auto sales, which fell 1 per cent after surging 2.9 per cent in June. July’s decline contrasts with reports from automakers. General Motors, Ford, Chrysler, Toyota and Nissan have all reported double-digit sales gains from a year ago. But the government’s figures are seasonally adjusted and compare sales with the previous month, not with year-ago levels.

Some big retail chains reported that shoppers seemed to be holding off on back-to-school shopping in July. Revenue at stores opened at least a year rose 3.5 per cent compared with a year ago, according to a tally of 11 retailers by the International Council of Shopping Centers.

Many stores were already offering discounts to induce shoppers to spend on fall clothing, which began showing up on store shelves in mid-July. But retail analysts say even more deals could be coming in August as stores try to boost sales during the back-to-school season, which runs from mid-July through mid-September.

Americans are still being held back by scant pay increases at a time of higher taxes and rising gas prices. In January, a Social Security tax increase kicked in. It means that someone who earns $50,000 has about $1,000 less to spend this year. A household with two high-paid workers has up to $4,500 less.