U.S. retail sales came in flat this morning, but economists see hope in the status quo.

Says BMO Nesbitt Burns, “This may not seem like cause for joy, but the details were clearly stronger than the headline implies or the markets expected. The underlying strength cooled ardour for a 50 basis point rate cut by the Fed, and maintained a bit of upward pressure on Treasury yields this morning.”

Weak auto sales, and big drops in gas prices restrained any gains. Sales actually rose 0.6% if you drop out these components. “You can’t tell from the headlines, but July was actually not a bad month at all for American retailers. July was held back by a huge drop in gasoline prices that translated into lower dollar sales at the pumps for the second consecutive month. Other sectors appeared to benefit from the cash freed up by reduced fueling costs, and perhaps from the first of the tax rebate flows,” says CIBC World Markets.

Economists continue to look to consumers to keep the economy alive. “The consumer still stands at the vanguard in the battle against an outright recession,” says CIBC World Markets. “Although overall retail sales were flat in July, there might still have been a modest real spending increase once the impact of falling gasoline prices is removed. There was no material change in the market’s outlook for Fed policy, which continues to be consistent with our view that the Fed will cut a quarter point in August, with odds favouring at least one more rate trimming later this year.”

“The persistent American consumer is not going away anytime soon, which is good news for Canadian exports. We look for the tax rebate checks, which may have helped modestly in July at the end of the month, to bolster August sales results. This temporary source of spending power could, of course, be concealing more lasting weakness in employment/income growth. Any such weakness will not be immediately apparent, however,” cautions BMO Nesbitt Burns.