June 21, 2011 / 12:38 PM / 6 years ago

Retail sales show consumers scaling back

<p>A worker paints price tags in the used car lot at a Chrysler car dealership in Toronto, April 30, 2009.Peter Jones</p>

OTTAWA (Reuters) - Canadian consumers are keeping a tighter grip on their cash, retail sales data for April shows, as households remain deeply in debt and are no longer driving economic growth.

Statistics Canada said on Tuesday that retail sales rose 0.3 percent in April, up from the 0.1 percent decline in March but below the 0.5 percent market forecast. Sales rose 0.2 percent in volume terms in the month and were flat excluding autos.

"That softening trend is seen no matter which way you slice it," said Leslie Preston, economic analyst at TD Economics.

Preston said year-on-year measures of sales "have all decelerated significantly since earlier in the recovery and are off their pre-recession pace."

On a more upbeat note, the leading indicator rose 1 percent in May, twice the rate expected, due to strength in the manufacturing sector.

That may have helped lift the Canadian dollar against its U.S. counterpart on Tuesday morning, although the foreign exchange market is largely fixated on the Greek debt crisis. The currency rose as high as C$0.9746 to the U.S. dollar, or $1.0261, just after the data was released, up from Monday's North American finish of C$0.9802 to the U.S. dollar, or $1.0202. It later pared gains.

RATES ON HOLD

Retail sales have disappointed market expectations every month since December 2010.

The Bank of Canada has long predicted the softening of consumer spending, saying it would be replaced by exports and business investment as the primary forces of growth.

The bank has also warned that household debt levels are at an unprecedented high, while seeing early signs that debt is easing and becoming more compatible with income growth.

The soft patch in the economy combined with a highly uncertain global outlook means the Bank of Canada will be in no rush to raise its key interest rate from the current ultra-low 1.0 percent, analysts said.

"There is certainly little in this report to give the Bank of Canada any reason to hike rates before 2012," Preston said.

Although sales rose in six of 11 retail subsectors, the biggest contributors to the rise were motor-vehicle and parts dealers, which reported a 1.7 percent jump in receipts.

In the 12 months to April, sales climbed 3.6 percent.

In the leading indicator for May, as in the previous month, all three of the manufacturing components strengthened: demand from the aerospace industry boosted new orders, the ratio of shipments to inventories posted its fourth consecutive gain, and the average work week lengthened.

Components related to household spending were mixed and financial indicators continued to slow, Statscan said.

Overall, nine of the 10 components rose in May and one, housing, declined.

Reporting by Louise Egan and Howaida Sorour; editing by Peter Galloway

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