Retail sales, dragged down by the sharpest drop in auto sales in 10 months, declined 0.2 percent in August, the government said.

The Commerce Department said that sales dropped $330 million to a seasonally but not inflation-adjusted $133.5 billion.Most economists had been both expecting and hoping for the slight decline, taking it as evidence that growth in consumer demand has slowed, thus easing inflationary pressures in the economy.

It was the first overall decline in sales since April's 0.4 percent drop and followed a revised 0.1 percent gain in July, which had originally been estimated at a stronger 0.5 percent.

Auto sales fell 1.8 percent in August to a seasonally adjusted $29.1 billion. It was the sharpest decline in this volatile category since October.

Excluding autos, sales last month rose a modest 0.2 percent following a slight 0.1 percent gain in July.

Sales at department and other general merchandise stores were also weak, falling 0.4 percent in August to $15.1 billion, following a 0.1 percent drop a month earlier.

Analysts say hotter than usual weather in August along with consumer indifference to new fashions in women's clothing held back department store sales.

Sales of durable goods, "big ticket" items expected to last three or more years, were down 1.0 percent last month, held back by autos and by a 1.2 percent drop in furniture sales.

Furniture sales had fallen 2.1 percent in July. Rising mortgage interest rates have cut into home buying and when home sales drop, analysts say fewer home furnishings are sold.

Sales of building supply, hardware and garden stores were up 0.6 percent in August.

Sales of non-durable goods were up 0.4 percent last month, despite the decline at department stores.