Consumer spending continues to lead the US economic recovery, after sales for July rose at the fastest rate for four months.

Latest Commerce Department figures show a stronger-than-expected 1.4% increase in retail sales last month as consumers benefited from tax cuts. This was the quickest growth since March and followed a 0.9% rise in June.

The auto industry led the way with a 3.2% hike; but even excluding this sector, sales climbed 0.8%. Spending also rose at restaurants and bars – a sign of rising confidence.

Consumer expenditure – which accounts for around 70% of US economic activity – has kept the economy afloat during the recent downturn. But there are now signs that businesses are beginning to increase their spending as well.

A separate report from the Commerce Department this week found a 0.1% June rise in business inventories – the first upturn since March. Analysts expect production to increase as companies respond to rising sales by replenishing their depleted stocks.

Data sourced from: USA Today; additional content by WARC staff