Primarily reflecting a steep drop in auto sales, the Commerce Department released a report on Friday showing an unexpected decrease in U.S. retail sales in the month of August.

The Commerce Department said retail sales dipped by 0.2 percent in August after rising by a downwardly revised 0.3 percent in July.

Economists had expected retail sales to inch up by 0.1 percent compared to the 0.6 percent increase originally reported for the previous month.

The unexpected decrease in retail sales largely reflected the sharp drop in sales by motor vehicle and parts dealers, which plunged by 1.6 percent in August after coming in unchanged in July.

Excluding the slump in auto sales, retail sales rose by 0.2 percent in August after climbing by 0.4 percent in July. Ex-auto sales had been expected to increase by 0.5 percent.

Sales by gas stations surged up by 2.5 percent amid higher prices, while sales by miscellaneous store retailers jumped by 1.4 percent.

The increases were partly offset by notable declines in sales by non-store retailers, clothing and accessories stores and electronics and appliance stores.

The report also said closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, fell by 0.2 percent in August after climbing by 0.6 percent in August.

"Nonetheless, with employment and confidence at high levels and wages showing some tentative signs of improvement we remain broadly upbeat on the prospects for spending," said ING Chief International Economist James Knightley.

He added, "With business surveys suggesting ongoing healthy growth and inventories set to provide a boost we still think US GDP could come in close to 3% for 3Q."

Despite the monthly decrease, the Commerce Department said retail sales in August were up by 3.2 percent compared to the same month a year ago.

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