May 23, 2012 / 12:38 PM / in 6 years

Canada retail sales signal modest growth

OTTAWA (Reuters) - Canadian retail sales bounced back in March after a weak February, but sales looked soft excluding the auto sector, and the figures sent mixed signals about first-quarter growth.

The 0.4 percent increase in retail sales, reported by Statistics Canada on Wednesday, showed consumers spent more after a weak start to the year, but did not quite resume their 2011 role as the main drivers of growth.

Prompted by unusually warm weather, Canadians bought more cars and recreational vehicles such as boats and motorcycles in March. They also invested in clothing, footwear, sporting goods and garden and building equipment.

The increase was a notch above the 0.3 percent gain forecast in a Reuters poll and followed a 0.2 percent decline in February.

But stripping out motor-vehicle and parts dealers, sales were up just 0.1 percent. Gasoline sales fell, to the surprise of analysts, and there were gains in just seven of the 11 sub-sectors that Statistics Canada tracks.

Analysts were heartened by the 0.4 percent rise in the retail sales volume, used to calculate gross domestic product.

“The volume gains should translate into decent support for March GDP, which is on track for a roughly 0.4 percent advance at this point,” said Avery Shenfeld at CIBC World Markets.

Shenfeld sees first-quarter growth below 2 percent on an annualized basis, below the Bank of Canada’s 2.5 percent estimate. But he said the second quarter looks set for a stronger performance based on strong jobs gains and other data.

After the report, the Canadian dollar extended its losses against the U.S. currency, and later fell as low as C$1.0296 versus the U.S. dollar, or 97.13 U.S. cents, its weakest level since January 9. Analysts said the market was more focused on Europe than on domestic data.

The troubles in Europe are set to be a major theme ahead of the Bank of Canada’s next rate decision date on June 5. After freezing rates at 1.0 percent since September 2010, the bank last month signaled it might start raising rates soon because of a strengthening economy and firm inflation.

“The clear risk to this view is the ongoing stresses in the euro zone which, in an eerie sense of déjà vu to last year, may cause the bank to step away from its hawkish rhetoric,” said David Tulk, chief macro strategist at TD Securities.

But the bank must also take account of the strength of the domestic economy, as reflected in the 1.2 percent increase in retail sales of motor vehicle and parts in March.

Sales at general merchandise stores rose for the third straight month, and were also up at building material and garden equipment dealers and sporting goods, hobby, book and music stores, Statscan said.

Compared with March 2011, overall retail sales were up 4.1 percent.

In a separate release on Wednesday, Statscan said the composite leading indicator rose 0.3 percent in April from March for the 10th consecutive monthly increase.

The components of the index related to household demand supported the increase in April, while manufacturing was lackluster.

Statscan, which is under pressure to cut spending, said it will discontinue the composite leading indicator immediately as it prioritizes other data and because similar information is available from other sources.

“By focusing resources where they are most needed, Statistics Canada will continue to provide high-quality, reliable and timely information at a lower cost to Canadians,” Statscan spokesman Peter Frayne said.

Reporting By Louise Egan; Editing by Theodore d'Afflisio; and Peter Galloway

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