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OTTAWA (Reuters) - Despite troubles in the auto industry, Canadians bought a lot of new cars in September, helping to push up overall retail sales in the month by an unexpectedly strong 1.1 percent from August.
Statistics Canada said on Tuesday the increase in retail sales was largely due to the first rise in new vehicle purchases since January. Car dealers in Canada forecast that 2008 will be the second or third best year on record for new vehicle sales, even as auto manufacturers complain of plummeting U.S. sales.
The September gain more than offset August's 0.3 percent decline in retail sales and made economists look excessively downbeat with their median forecast of a 0.3 percent increase.
"In all frankness, all economists are eating some humble pie on this one as growth in total sales nearly tripled estimates, while growth in core sales ex autos quadrupled consensus predictions," said Derek Holt, economist at Scotia Capital.
The rise in car sales does not mean smooth sailing for the Canadian auto manufacturing industry, however, as about one in nine cars made in Canada is exported to the United States, where car sales are at depressed levels.
Excluding the auto sector, which accounts for about a third of the total, Canadian retail sales still expanded by a robust 0.8 percent in September. Volumes rose 0.7 percent.
The sales growth is the latest in a series of strong third-quarter data, leading economists to predict economic growth of above 1 percent in the quarter.
The good news is unlikely to last through the fourth quarter as the impact of the global financial crisis hit the Canadian economy in full force in October.
"Don't mistake today's report for broader strength in the Canadian economy as businesses spend less on equipment purchases, housing is in retreat, commodity price declines are sparking key project suspensions and cancellations, and exports are getting whacked," Holt said.
New car sales jumped 2.9 percent in value terms in September and the number of vehicles sold also rose. The automotive sector as a whole -- which encompasses used vehicles and parts and gasoline -- rose 2.2 percent.
Despite near-record sales, car dealers in Canada have asked the government for help in ensuring lines of credit from banks as the global crisis threatens to put some automakers out of business.
The Canadian Automobile Dealers Association said on Friday the industry is on track to sell about 1.6 million new vehicles this year. The record is just above that level.
By contrast, losses in Canada's auto manufacturing industry are expected to balloon to C$1.7 billion ($1.4 billion) this year due to collapsing sales in the U.S. market, the Conference Board of Canada said on Tuesday.
Four other retail sectors also posted gains in September, with the strongest being general merchandise stores and food and beverage stores. Stores selling building and outdoor home supplies posted their biggest drop in sales since April.
Reporting by Louise Egan; editing by Peter Galloway