STRONG CAR sales following the introduction of the new VRT regime put the brakes on a six-month decline in retail sales in July. However, car registration figures for August indicate that the 13.3 per cent monthly rise in motor sales is unlikely to be repeated.

In addition, underlying retail sales continue to decline and the 5.2 per cent year-on-year fall in sales volumes apart from motors was the worst figure in over 20 years. The headline figure, which includes the bumper motor business, recorded a decline of 3.5 per cent on July 2007.

Household goods fared worst in July, particularly big ticket items, with electrical goods sliding 7.3 per cent in the month and 12.5 per cent year-on-year. Furniture and lighting was also weaker, down 3 per cent on June and 16.6 per cent on the year earlier period.

Apart from the motor sector, the only two areas showing growth in business in July were food, drink and tobacco, and books, newspapers and stationery.

"The core sales picture continues to deteriorate," said Goodbody economist Deirdre Ryan. She added that the 5 per cent slide in underlying sales volumes was a "rapid acceleration on the 2 per cent rate of decline seen in June".

Davy economist Rossa White noted that, leaving aside garages, retail sales had risen only once in the past nine months. Retail sales data record spending on goods and account for roughly half of consumer spending; the balance is spent on services.

Detailed figures for the second quarter show that volumes in all retail sectors were down on the first three months of the year, with the motor trade faring worst at minus 5.9 per cent.

Even the exceptional bounce in July car sales only brings the motor industry fractionally into positive territory for the last 12 months, and Ms Ryan notes that August registration data show a 42 per cent fall in the year ago period.

That is likely to lead to a further weakening of retail sales when figures for August are released.

High inflation and growing weakness in the labour market, particularly in the construction sector, are contributing to the weak trend in retail sales this year, according to Alan McQuaid, economist at Bloxham Stockbrokers.

"Following an average volume increase of 6.3 per cent in personal expenditure on goods and services in 2007, we think we will do well to have a flat reading this year, though it would be no great surprise if real consumer spending was actually lower in 2008 than last year," Mr McQuaid said.

Despite likely cuts in interest rates next year, he sees only fractional growth in retail sales in 2009.