NEW YORK — The outlook for the back-to-school shopping season looked grim Thursday, as retailers' July sales reports showed an increasing shift toward buying necessities at discounters and away from nonessentials like clothing.

With the benefits of the government stimulus checks fading, the big worry is how much shoppers — squeezed by high gas and food prices — will retrench in the critical months ahead.

As the nation's retailers reported monthly sales, Wal-Mart and Costco posted solid gains. But Wal-Mart, the world's largest retailer, noted that shoppers are increasingly running out of money and projected that sales would slow in August as the benefits from the stimulus checks dry up.

Many apparel stores including Limited Brands and Pacific Sunwear of California remained in a malaise.

"Consumers are in a fair amount of pain," said Ken Perkins, president of research company RetailMetrics. He worries that without the government stimulus money, shoppers won't have any incentive to splurge on back-to-school merchandise.