February 22, 2008 / 1:36 PM / in 10 years

Weak retail sales point to soft Dec growth

OTTAWA (Reuters) - Retail sales outside the auto sector disappointed in December, adding to a string of gloomy data suggesting weaker-than-expected economic growth at year-end.

Statistics Canada said on Friday that total retail sales climbed 0.6 percent in the month due to a surge in new car deals.

But excluding autos, sales fell 0.4 percent from November against forecasts for a 0.4 percent gain, missing expectations and knocking the Canadian dollar lower.

“Santa gave out a lot of new cars and trucks this Christmas, but not much else,” said Jacqui Douglas, economist at TD Securities in a note.

The economy may have contracted slightly in December month-on-month following previous reports showing factory sales tumbled 3.4 percent, wholesale trade fell 2.9 percent and the December trade surplus shrank to a nine-year low in the month.

Statscan will release the December gross domestic product data on March 3.

The latest average forecast by analysts in a Reuters survey is for 0.1 percent GDP growth in December but BMO Capital Market’s Doug Porter now pegs the figure at possibly as low as a negative 0.5 percent.

Still, economists remain upbeat that consumer spending will stay healthy in 2008 as personal income tax cuts kick in as well as a one percentage-point reduction in the federal sales tax to 5 percent. Real sales grew 5.5 percent in the fourth quarter on an annualized basis, up from 1.1 percent in the third quarter.

“So while consumers may not have been very active in December, they certainly haven’t put away their wallets for good, and with the strength in Canada’s employment situation, we expect consumer spending to remain relatively strong heading into 2008,” said Douglas.

At 9:40 a.m. EST the currency was at C$1.0123 to the U.S. dollar, or 98.78 U.S. cents, down from C$1.0013 to the U.S. dollar, or 99.87 U.S. cents, at Thursday close.

MORE RATE CUTS

That strong domestic demand has been a central factor in the Bank of Canada’s decision to ease interest rates moderately rather than match the more aggressive cuts by the U.S. Federal Reserve. The central bank has reduced its overnight rate by a half-point since December and has signaled more to come.

In constant dollars, retail sales grew by 0.5 percent in December, Statscan said.

New car dealers, which represent about 19 percent of total retail activity, saw their sales jump 4.4 percent in December and truck sales roared higher by 7.7 percent. Dealers tried to lure buyers in December with lower prices to reflect the appreciation of the Canadian dollar and a sales tax cut to be implemented in January.

However, in 2007 as a whole, car sales growth was only 3.4 percent, below the annual growth in total retail sales of 5.2 percent.

Sales fell in December for stores selling clothing and accessories, home furnishings, building supplies, food and beverages and miscellaneous items, Statscan said.

Editing by Renato Andrade

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