The data was released as Federal Reserve chairman Ben Bernanke said the US recession has probably ended.
"Even though from a technical perspective the recession is very likely over at this point, it's still going to feel like a very weak economy for some time," Bernanke said yesterday.
Meanwhile, US inflation at the wholesale level also rose last month as gasoline prices surged the most in a decade, the retail sales report is a sign that consumers may be less cautious about spending as the economy recovers. Consumer spending is closely watched because it accounts for about 70 percent of the nation's economic activity.
The Commerce Department said yesterday that retail sales rose a seasonally adjusted 2.7 percent last month, after falling 0.2 percent in July.
That is the largest gain in 3 years and beat analysts' expectations of a 2 percent increase. Excluding autos, sales rose 1.1 percent.
In a separate report, the Labor Department said wholesale prices rose 1.7 percent in August, more than double the 0.8 percent rise economists expected. Wholesale prices had fallen by 0.9 percent in July.
US businesses slashed their inventories for the 12th straight month in July, but sales posted a second consecutive gain, providing hope that companies soon will switch from trimming stockpiles to increasing their orders.
The Commerce Department said inventories dipped 1 percent in July.
Treasury Secretary Timothy Geithner said the US economy has not entered a full-fledged recovery and the Obama administration will take a hard look at measures that accelerate growth.
"We don't have in place yet a real recovery, in which employers are hiring and investing again," Geithner said.
