By  on August 14, 2006

WASHINGTON — Sales of fashion items were mixed in July, with apparel and accessories stores advancing and department stores retreating, but a strong rise for all retail and food service outlets indicated the economy might not be slowing as much as previously thought.

Apparel and accessories stores posted sales of $17.9 billion, a 0.7 percent increase compared with the preceding month and a 7.6 percent rise from a year earlier.

On the other side of the ledger, sales of $17.6 billion at department stores marked a decline of 0.4 percent from June and a 1.1 percent drop year-over-year.

"[Department stores] are very much appealing to kind of a middle-income type of individual, whereas the specialty apparel clothing stores are more upmarket," said Global Insight U.S. economist Brian Bethune, noting higher gas prices have hit the middle-income consumer harder.

Across the economy, sales accelerated in June, rising 1.4 percent after a 0.4 percent drop in May.

That increase raised the speculation that the Federal Reserve, which is counting on a slowing economy to restrain inflation, might revisit interest rate hikes. Last week, the Fed kept its benchmark federal funds interest rate at 5.25 percent, ending a two-year run of 17 consecutive quarter-point rate increases.

The Federal Open Market Committee said it would closely watch incoming data on the state of the economy, such as Friday's sales report, to determine if further rate hikes are necessary. The committee next meets on Sept. 20.

"I'm not reading a ton into a one-month number," said Paul Nolte, director of investments at Hinsdale Associates, referring to the bump in overall sales. "For the most part, the trend in retail sales is not terrific."

The Labor Department's Consumer Price Index, a key gauge of inflation that rose 0.2 percent in June, will be updated on Wednesday.

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