OTTAWA (Reuters) - Canadian retail sales inched up 0.1 percent in July, their slowest pace since March, a sign that consumer spending is slowing in the face of high prices and a troubled U.S. economy.
Easing gasoline prices and fewer purchases of new cars caused sales to be weaker than the 0.2 percent growth markets had forecast, according to data released by Statistics Canada on Monday.
"It is clear that the momentum in Canadian consumer spending has been thoroughly lost, and this could well get worse once we push into fall data that reflects recent financial market turmoil," said Derek Holt, economist at Scotia Capital in a note.
"As data pushes into the second half of 2008, warning flags on Canada's domestic economy are springing up like weeds," he said.
Sales rose 0.4 percent excluding new cars and used and recreational vehicles and parts, Statistics Canada said. In volume terms, overall sales were unchanged after shrinking in the previous two months.
The automotive sector reported a 0.6 percent decline on the month as new car dealers' sales slid 0.9 percent and gasoline stations eked out a 0.1 percent gain, compared with a price-induced 4.2 percent leap in June.
Retail sectors linked to household demand showed the most strength in July, with furniture, home furnishings and electronics stores posting 1.8 percent growth, and building and outdoor home supplies stores posting 1.2 percent growth.
Still, economists highlighted the underlying trend of softening consumer spending, which has thus far been the bright spot as Canada's trade-led economy slows down.
"If August and September's numbers do not pick up, real retail sales could be on track for a weak quarter. It is clear that there are some headwinds for retail sales, as the labor market cools, and elevated gasoline prices take a toll on the consumer," said Charmaine Buskas, senior economics strategist at TD Securities.
Reporting by Louise Egan; editing by Peter Galloway