Retail sales signal slowdown, not recession

Wed Aug 20, 2008 1:10pm EDT
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By Louise Egan

OTTAWA (Reuters) - The value of Canadian retail sales climbed 0.5 percent in June due to soaring gasoline prices, but in volume terms sales fell, indicating consumer spending is slowing but not enough to drag the economy into recession.

Statistics Canada said on Wednesday that retail sales fell 0.4 percent on the month when the effect of rising prices were stripped out. Excluding auto sales, they jumped by a bigger-than-expected 1.4 percent.

Markets had expected overall sales to climb 0.4 percent and to rise 0.5 percent without autos.

Despite signs of a softening in consumer spending, which has been keeping the economy buoyant amid a slowdown in exports, economists still expect gross domestic product to have grown in June and in the second quarter.

"Weaker real sales detracted from our estimates for GDP growth in June ... Depressed confidence, sagging job markets and cooling wealth gains are taking their toll on the Canadian consumer," said Scotia Capital economist Derek Holt in a note.

Still, Scotia forecasts the economy to have grown by about 0.3 percent in June, and that growth in the April-June quarter will come in at between 0.9 percent and 1 percent on a quarter-over-quarter basis.

A separate Statscan report on Wednesday suggested continued weakness in the third quarter as the composite leading indicator was unchanged in July for the second straight month. The housing index registered its sharpest fall since June 2002, offsetting gains in most of the leading indicator's other components.

The Canadian dollar fell against the U.S. dollar after the data was released, trading at C$1.0635 to the greenback, or 94.03 U.S. cents, at midmorning, down from C$1.0610 to the U.S. dollar, or 94.25 U.S. cents, at Tuesday's close.   Continued...