January 21, 2011 / 1:52 PM / 7 years ago

Canadian retail sales show surprising strength

3 Min Read

<p>A Christmas tree is seen in the midst of shoppers in a major downtown shopping mall in Toronto December 12, 2009.Mark Blinch</p>

OTTAWA (Reuters) - Canadian retail sales showed surprising resilience in November and posted their biggest gain in eight months, beating analysts' expectations and boosting optimism about the strength of the economy.

Retail sales rose 1.3 percent and marked a sixth straight month of gains, Statistics Canada said on Friday. It was the biggest increase since March 2010. Markets had expected a 0.5 percent rise, according to the median forecast in a Reuters poll.

The Canadian dollar firmed against the greenback after the data was released. The currency touched C$0.9941 to the U.S. dollar, up from around C$0.9966 to the U.S. dollar heading into the release.

Analysts said that on a quiet day for data, the report may have had a greater influence on markets than usual.

Strong consumer spending and government stimulus measures have been the major drivers of Canada's recovery from recession while exports have sagged due to the weak U.S. economy. The Bank of Canada said this week it expects consumer spending to contribute less to growth this year and next, with exports and business investment taking up the baton.

The November retail sales figure suggests that slowdown in consumer spending has not happened just yet.

"It was a surprisingly robust report. Just as it looked like Canadian consumers were starting to wind down, they actually have picked it right back up again," said Doug Porter, deputy chief economist at BMO Capital Markets in Toronto.

Sales expanded across eight of the report's 11 subsectors with the auto industry leading the way up. Total sales volume gained 1.3 percent in November after being flat the month before.

Derek Holt, economist at Scotia Capital, wrote in a note that the rise in volume implies flat prices on average, an important factor as volume gains flow straight through to growth in the economy.

"Canadian consumers were out in full force to start the holiday shopping season and this will encourage an upward bias to November gross domestic product estimates as well as our fourth-quarter GDP call," Holt wrote.

Sales were up 5.3 percent from a year earlier. Sales excluding autos and auto parts rose 1 percent, and excluding autos and gasoline they rose 0.9 percent.

October's retail sales figure was revised up to a 1 percent rise from an initial reading of 0.8 percent.

Sales at motor vehicle and parts dealers gained 2.7 percent on continuing strength in sales at new car dealers. The largest drop in sales was at electronics and appliances stores, the first decline for the group since July 2010. Sales fell 2.2 percent, more than offsetting October's gain.

Reporting by Leah Schnurr and Howaida Sorour, additional reporting by Solarina Ho in Toronto

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