Retail sales in July fell at their slowest pace in half a year, aided by the return of mainland visitors and local shoppers after the Sars crisis. The value of retail sales for the month was $14.6 billion, down 2.7 per cent on July last year. After adjusting for deflation, retail sales fell 0.5 per cent year-on-year, the smallest drop since January, when sales traditionally surge because of the Lunar New Year holidays. Except for the Lunar New Year months, retail sales have been shrinking since September 2001 because of the sluggish economy and high unemployment. Denise Yam Wing-yan, an economist at Morgan Stanley, believes the retail sector's improved performance in July is mainly a sign of increased spending by mainland visitors. 'The return of [mainland] tourists in the past two months kick-started the rebound in the retail sector,' Ms Yam said. Mainland arrivals for the same month rose 22.6 per cent year-on-year, accounting for more than half of Hong Kong's 1.29 million visitors for the period. But Ms Yam believes local spending will take time to recover fully. Amid the high unemployment rate, wage cuts and prolonged deflation, Hong Kong shoppers have opted to save because they are afraid they may lose their jobs or they think the prices of goods will fall further.