U.S. retail sales shot up 1.4% in July boosted by a jump in auto sales, the Commerce Department reported Wednesday. Economists had expected a 1% increase.

It was the third straight monthly increase as sales rose a revised 0.9% in June and 0.5% in May.

Auto sales surged 3.2%. Otherwise, the increasein retail sales would have been 0.8%. Gasoline sales were a big factor too. Without gas and auto sales, retail sales would have risen by 0.7%.

“July results topped optimistic expectations by a visible margin and June figures were revised higher,” enthuses BMO Nesbitt Burns, but it allows that markets were looking for strength in this report, so the reaction “may not be overwhelming”.

“Consumers proved once again in July that they are the engine of growth behind the U.S. recovery,” comments RBC Financial.

TD Bank says, “Today’s data point to broad-based strength in consumer spending in the first month in which the Bush Administration’s tax package took effect, and with the full impact of those tax cuts unlikely to have been captured in the report, August promises to be another strong month.”

With strong sales starting the third quarter, Nesbitt suggests that real GDP growth is set for a very healthy Q3, perhaps topping 4%. “The July increases were extraordinarily widespread. Perhaps the tax cut was already taking hold in July. But the expected lag between the change in taxes and spending would point to August and September as strong months as well.”

TD says that the key question is whether the momentum in spending will persist beyond the temporary surge associated with one-off tax cuts, particularly given the continuing loss of jobs in the U.S. economy. “That remains to be seen, but with the recent firming in a broad variety of U.S. economic indicators, not to mention yesterday’s powerful message from the Fed that ultra-low rates are here to stay for a while, the risk of a significant slowdown in spending would appear to be limited.”