Economic impact of Canada retail sales jump seen small

Thu Dec 20, 2012 11:56am EST
 
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By David Ljunggren

OTTAWA (Reuters) - Canada retail sales in October jumped by a stronger-than-expected 0.7 percent from September to hit a record, but analysts said the figures were less impressive than they seemed and would not do much to boost recent sluggish economic growth.

Statistics Canada said on Thursday that retail sales in October reached C$39.45 billion ($39.85 billion), the third consecutive all-time high. Sales have now grown for four straight months.

But analysts, who had expected a month-over-month increase of 0.2 percent, noted that in volume terms sales were only up by 0.3 percent.

This, they predicted, would not have a major effect on October gross domestic product data due out on Friday. The consensus forecast is for a 0.1 percent increase.

"It's volume that matters to GDP such that while the (October) gain was positive, it will translate into GDP much less powerfully than the headline would suggest," Scotiabank economists Derek Holt and Dov Zigler said in a note to clients.

Canada's economy grew at a sluggish 0.6 percent pace, annualized, in the third quarter. Although the Bank of Canada is predicting fourth-quarter growth of 2.5 percent, annualized, that looks to be too optimistic given exporters' problems with weak markets and the strong Canadian dollar.

The retail sales data helped push the Canadian dollar up to a session high of C$0.9875 versus the U.S. dollar, or $1.0127, compared with C$0.9890, or $1.0111, before the release. It later slipped back and at 10:05 a.m. (1505 GMT) was trading at C$0.9893, or $1.0111. <CAD/>

In October, gains were reported in eight of 11 subsectors, representing 92 percent of retail trade.   Continued...