July Retail Sales Disappoint (Update 1)

Updated from 9:01 am ET.

NEW YORK ( TheStreet) -- U.S. food and retail sales inched 0.2% higher in July from June to $424.5 billion, according to the latest Commerce Department figures released on Tuesday, below Wall Street expectations of a 0.3% rise, according to Thomson Reuters.

Last month's retail sales numbers were 5.4% above retail sales in July 2012, the data said.

Retail sales excluding gas, autos and building materials rose 0.5% vs. the 0.3% growth estimate, according to Thomson Reuters. Some observers say the figure is encouraging given its gauge of overall consumer spending.

However, Sterne Agee chief economist Lindsey Piegza is still cautious.

"The effects of tax increases often take time to filter into consumers' long-run spending patterns, and with government furloughs taking effect coupled with modest employment gains and minimal income growth, there is plenty of cause for caution," Piegza writes in a note. "While positive, this morning's retail sales report was far from robust, and not yet enough to eradicate fears of a consumer slowdown undermining growth in the second half of the year."

Sales for motor vehicle and parts dealers fell 1% in July from June, but were still 11.8% above last year's numbers.

Sales at non-store retailers rose 8.8% from a year earlier vs. the 13.8% gain the month before.

Total sales for the May through July 2013 period were up 5.2% over the same period a year ago. The Commerce Department revised the May to June 2013 sales growth to a 0.6% rise from 0.4%.

Furniture and home furnishings retailers, electronics and appliance stores as well as building material and garden equipment also saw sales declines last month.

A bright spot in the somewhat dismal report: sporting goods, hobby, book and music stores saw 1% rise in sales last month from June. Clothing and accessories stores saw a 0.9% gain from June.

"Spending has stalled and the economy is stuck in neutral," National Retail Federation Chief Economist said in a statement. "Even with modest employment gains and steady consumer confidence, Americans remain in a cautiously-positive spending pattern. While clothing and sporting goods retailers saw modest gains with early back-to-school shopping, home-based retailers saw marked decreases, possibly indicating the end of the year-long housing boom. This month's retail sales report will make any decision on tapering that much harder for policymakers in D.C."

Retail stocks were mixed on Tuesday.

J.C. Penney ( JCP) shares were falling 2.4% to $12.85 after activist investor Bill Ackman resigned from the struggling department store's board of directors after making contentious accusations at the company over the past several days. Ackman still owns roughly 18% of J.C. Penney shares, but observers are concerned he might look to exit out of those shares at once.

July monthly same-store sales at chain retailers came in softer than expected last week, further strengthening the argument that the back-to-school selling season, one of the largest selling periods in the year and an indicator as to how the holiday season might shape up, will be disappointing.

"The early back-to-school reads have been OK not great," retail consultant Jan Rogers Kniffen told TheStreet. "As we get closer into back-to- school, because back-to-school builds now right through Labor Day, I think we're going to see strengthening. Retailers are very well managed on their inventories. Wal-Mart ( WMT) is very well set up for back-to-school. Target's ( TGT) done a nice job getting ready for back-to-school. Macy's ( M) does a huge business in their ... teen business for back-to-school are all really well positioned. It's not going to be the disaster people talk about."

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

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