WASHINGTON - Americans spent less at most retail stores in July and inflation remained tame as high unemployment and weak job growth fueled fears of a slowing economic recovery.

A busy month for car dealerships and higher gas prices lifted overall retail sales 0.4 percent last month, the Commerce Department said Friday. It was the first overall gain in three months.

Still, most retailers reported declines. Excluding autos and gasoline sales - which accounted for one-fourth of the July figures - retail sales fell 0.1 percent last month. Sales were down 1 percent at department stores and also dropped at specialty clothing stores, furniture stores, hardware stores and appliance stores.

"While retailers have seen a solid gain in activity compared to last year, the more recent three month trend has been negative and that is not good news," said Joel Naroff, president of Naroff Economic Advisors.

The Consumer Price Index rose 0.3 percent in July, the Labor Department said. But that was mostly because of rising gas prices. After stripping out volatile food and gas prices, the so-called "core" index increased 0.1 percent. Over the past year, core consumer prices rose 0.9 percent - the slowest pace in more than four decades.

The Commerce Department also reported that inventories held by businesses rose for a sixth straight month in June. But business sales declined for a second month in a row, another sign of weak demand among consumers.

Auto sales represent such a large portion of monthly data and gas sales change rapidly from month to month. So economists prefer to look at the retail sector without those two categories. And retail sales figures are not adjusted for price changes.

Broad declines in other retail sales have economists concerned that spending will slow further in the second half of this year. Households are saving more and spending less as they struggle with high unemployment and lackluster job growth.

Economists note that the government revised activity in the previous two months to show slightly smaller decreases. But overall, the declines for most retailers in July suggest the recovery is losing steam.

"There is only one thing that's for sure - economic momentum has slowed," said Jennifer Lee, senior economist for BMO Capital Markets.

The July increase in retail sales followed declines of 0.3 percent in June and 1 percent in May. Sales had surged 2.1 percent in March. But since then it has weakened.

Consumer spending accounts for 70 percent of economic activity.

Summer promotions and easier credit lured shoppers back to car buying last month. Nissan, Toyota, Volkswagen, Subaru and Kia reported the biggest gains. The industry sold more than 1 million cars and light trucks. That's 5.1 percent higher than in July 2009. Last year auto sales fell to the lowest level in three decades.

Major department store chains reported solid second-quarter earnings this week. But executives see economic uncertainty in the months ahead.

J.C. Penney Co. slashed its earnings forecast for the year, an ominous sign for the economy. The company caters to middle-class consumers and therefore serves as a key barometer of consumer spending.

"Consumer constriction of credit, the job loss situation and the protracted housing situation has had the biggest impact of the middle-income consumer," said Myron Ullman III, chairman and CEO.

Ullman noted Penney executives had met with suppliers in Asia a few weeks ago, and what they've seen across the board is caution in terms of future inventories.

"So I think it's prudent for us to also be cautious," he added.

Macy's boosted its net income outlook and increased its forecast for a key revenue measure on Wednesday. But that was only because it's confident that it is taking market share from rivals.

Economists will be studying earnings reports from Wal-Mart Stores Inc., the world's largest retailer, and Target Corp. to get an even better read of consumers' financial health. Both report next week.

In the July retail sales report, sales at gasoline stations rose 2.3 percent in July, the biggest jump since last November. But much of that strength reflected higher prices.

Prices are rising at the slowest pace in 44 years, well below the Federal Reserve's inflation target.

July's modest increase in consumer prices may quiet deflation concerns raised in recent weeks by some Federal Reserve officials. Deflation is a widespread and prolonged drop in the price of goods, real estate and stocks. It also reduces wages and can make it harder to pay off debts.

The last serious case of deflation in the U.S. was during the Great Depression. Most economists don't believe deflation will happen. But they are watching consumer prices closely for any signs of it.

AP Retail Writer Anne D'Innocenzio in New York contributed to this report.