Canadian data offer mixed view of the economy

Tue Mar 22, 2011 11:46am EDT
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By Ka Yan Ng

TORONTO (Reuters) - Unexpectedly soft retail sales for January and a rise in the leading indicator for February offered mixed signals on Tuesday on the direction of the Canadian economy and reinforced expectations that the Bank of Canada will be in no hurry to raise interest rates.

Retail sales dropped by 0.3 percent in January from December, pushed down by lower sales at new car dealers, Statistics Canada data showed.

It was the second straight monthly decline and contrasted with a 1.0 percent rise forecast by market operators. It also provided more evidence that the economy is still trying to shake off the effects of the global financial crisis.

"Today's retail sales report threw the first bucket of water on what otherwise appeared to be a blistering hot start to the new year," said Emanuella Enenajor, economist at CIBC World Markets.

Canada's economy grew by an annualized 3.3 percent in the fourth quarter of last year, and early indicators showed momentum in the first quarter. While the retail sales figures may weigh, analysts largely say the economy can still beat Bank of Canada forecasts for 2.5 percent growth in the first quarter, fed by a jump in wholesale trade and manufacturing shipments in January.

In contrast to the soft retail sales numbers, Statistics Canada also reported on Tuesday that the composite leading indicator rose 0.8 percent in February from January, in part due to new-found strength in the manufacturing sector.

The better-than-expected showing for the leading indicator was double the gains of the previous three months and the largest single increase since last May. Nine of the 10 components of the leading indicator posted gains, while one fell.

The mixed data kept anticipation of a Bank of Canada interest rate rise in check. The bank has kept its benchmark rate on hold at 1.0 percent since September, pending more evidence of a sustained recovery.   Continued...