Government subsidies may be moving the needle on new car and home sales, but also appear to have siphoned enough discretionary dollars to have hurt retailers' July sales.

July, which wraps up the second quarter for most retailers, is expected to mark the 11th consecutive monthly decline for comparable-store sales and one of this year's biggest drops. Retailers will report July sales on Thursday.

The 4.9% sale decline that Thomson Reuters expects would equal June's drop and indicate that demand for most retail goods, particularly apparel, is not being hoisted by government assistance.

In addition to federal measures, including the hugely successful "Cash for Clunkers" auto program, and tax credits and low interest rates for certain home buyers, July was influenced by chilly weather, a dearth of tax-free holidays, still-high unemployment and, in some cases, limited inventories that meant missed purchases.

It is "very possible... there could be some kind of substitution effect," with consumers going for cars instead of clothing during July because of federal incentives offering up to $4,500 an auto, Credit Suisse economist Jonathan Basile said during a conference call Tuesday.

Retailers also missed out on so-called back-to-school tax holidays in roughly 11 states, which shifted them to August from July and in some cases either couldn't move end-of-summer merchandise to make way for fall fashions or sold out summer goods too quickly due to cautious ordering.

Investors should look out for companies that may issue second-quarter warnings in tandem with their softer sales since they now have the full picture for the quarter.

American Eagle Outfitters Inc. (AEO) and Zumiez Inc. (ZUMZ) may lower expectations, some analysts said.

J.C. Penney Co. (JCP), Kohl's Corp. (KSS) and Aeropostale Inc. (ARO) are receiving the most predictions from analysts when it comes to lifting their views.

Still, retailers are looking at continued softness across the board, with teen apparel and department stores pegged to see the biggest same-store-sales declines. Teen apparel retailers are expected to post a 10.5% decline, while department stores are expected to report a 9% drop.

Abercrombie & Fitch Co. (ANF), despite adopting a promotional approach, is still looking at a 26.5% drop in July same-store-sales, Thomson Reuters said. Among fellow teen apparel retailers, American Eagle Outfitters is projected to report a 9.6% slide, while Zumiez is expected to post a comparable-store sales decline of 21.4%.

Buckle Inc. (BKE) and Aeropostale are projected to show sales gains in the 10% area, continuing their standout strength in the apparel group.

Department stores J.C. Penney, Nordstrom Inc. (JWN), Saks Inc. (SKS), Macy's Inc. (M) and Dillard's Inc. (DDS) are all looking at declines in the 10% range.

"The department store industry continues to worry us because there has not been enough capacity (reduction) versus volume that has been lost," Credit Suisse retail analyst Michael Exstein said.

Discounters, a group no longer benefiting from Wal-Mart Stores Inc.'s (WMT) generally stout contribution, are looking at a 6.1% drop, with BJ'S Wholesale Club Inc. (BJ) and Costco Wholesale Corp. (COST) still struggling from gas prices that remain well below last year's levels.

"With July another relatively cold month and the consumer remaining on the sidelines worried about high unemployment, even the return of new looks for back-to-school was not enough to drive strong traffic and sales," said Eric Beder, retail analyst at Brean Murray, Carret & Co. "With more and more consumers waiting for bargains and higher levels of overall value, the drive to be the first one to pay full price was particularly weak."

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com