Rise in Canadian retail sales fails to impress

Tue Aug 23, 2011 11:01am EDT
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By David Ljunggren

OTTAWA (Reuters) - Canadian retail sales rose a seemingly healthy 0.7 percent in June from May, but the figure prompted little enthusiasm from analysts who noted a one-off jump in auto sales had fueled most of the gain.

The outlook for Canada's economy has soured in recent weeks and the Bank of Canada now says second-quarter growth is likely to be flat or down slightly. A month ago the central bank forecast growth of 1.5 percent on an annualized basis in the quarter.

Sales by motor vehicle and parts dealers rose by 3.4 percent in June from May, in part due to discounting, Statistics Canada said on Tuesday. But excluding the auto sector, retail sales fell by 0.1 percent from May.

"June's rebound in retail sales was driven by sharply higher auto sales, thanks to earlier-than-normal and more generous price incentives," said Capital Economics analyst David Madani. "Since then, however, auto sales have fallen back and other indicators point to more subdued consumer spending in the third quarter."

Figures released early this month showed vehicle sales in Canada dropped by 4.9 percent in July from June.

The Canadian dollar edged up after the sales data and at 10:10 a.m., was at C$0.9876 to the U.S. dollar, or $1.0126, up from C$0.9901 to the U.S. dollar, or $1.01, at Monday's session close.

"With confidence sapped and weak U.S. demand, growth prospects in Canada have dwindled," said Mazen Issa of TD Securities. "We still expect a second half re-acceleration, albeit a modest one. With weakness well priced in by the markets, this retail sales print is unlikely to have a significant impact."

The increase in retail sales -- the third consecutive monthly gain -- matched analysts' forecasts. In volume terms, overall sales increased by 1.6 percent.   Continued...

<p>A General Motors dealership is seen in Montreal May 20, 2009. REUTERS/Christinne Muschi</p>