Retail Sales Unexpectedly Drop in August

Shoppers walk inside a large mall in San Jose, Calif., Tuesday, Aug. 12, 2008. The government says retail sales fell in July, the weakest performance in five months. (AP Photo/Paul Sakuma)

WASHINGTON - Sales at the nation's retailers unexpectedly dropped in August as frugal shoppers cut back, further proof the economy is losing traction.

The Commerce Department says retail sales fell 0.3 percent last month. Economists expected a gain of 0.3 percent.

Sales in July also turned out to be even weaker than previously thought, dropping 0.5 percent, the worst showing in five months.

Rising unemployment, strained household budgets and falling home prices — which make homeowners feel less wealthy — are making shoppers more cautious.