WASHINGTON (Reuters) -U.S. retail sales increased solidly in July, boosted by strong demand for motor vehicles as well as promotions by Amazon and Walmart, though a softening labor market and higher goods prices could curb growth in consumer spending in the third quarter.

Retail sales rose 0.5% last month after an upwardly revised 0.9% gain in June, the Commerce Department's Census Bureau said on Friday. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, advancing 0.5% after a previously reported 0.6% rise in June. Part of the rise in retail sales last month could be due to tariff-driven price increases rather than volumes. 

A rush to buy battery-powered electric vehicles ahead of the September 30 expiration of federal government tax credits helped to drive automobile sales in July, analysts at J.P. Morgan said.

Amazon and Walmart held sales promotions last month to lure inflation-weary consumers with deep discounts, including on back-to-school essentials. 

Amazon extended its sales window to 96 hours, up from the typical 48, featuring aggressive promotions on categories ranging from apparel to electronics. But downside risks to consumer spending are steadily rising. Middle- and higher-income households are mostly driving spending.

Bank of America Institute said an analysis of deposit data showed a widening in the wage gap between lower-income and higher-income households, an indication the labor market "appears to have deteriorated most significantly for lower-income workers." It said while lower-income households might not be losing their jobs, "soft labor demand is pressuring their pay and they are potentially working fewer hours."

Retail sales excluding automobiles, gasoline, building materials and food services increased 0.5% last month after an upwardly revised 0.8% rise in June. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have gained 0.5% in June.