BUSINESS

Retail sales rise in July, reversing last month's unexpected decline

09/24/2013 08:39 EDT | Updated 11/24/2013 05:12 EST
OTTAWA - Retail sales rose in July after disappointing numbers last month, suggesting consumers are feeling more confident and that the economic recovery remains on track.

"With all of the key monthly data now in hand, it looks like the Canadian economy did indeed bounce back in July," said Robert Kavcic, a senior economist at the Bank of Montreal.

Sales were "a tad softer than expected" when it came to volumes, "but, when combined with strong monthly readings in manufacturing and wholesale, the result is enough to leave real GDP on track for a rebound of about 0.5 per cent in July," he said.

Statistics Canada said Tuesday that retail sales were up 0.6 per cent in July to $40.3 billion.

The increases were led by higher sales at gasoline stations, but gains were reported in eight of the 11 subsectors, representing 52 per cent of total retail trade in July.

Sales at gasoline stations rose 3.2 per cent on higher prices at the pumps and greater volumes, while the clothing and general merchandise sectors also posted increases. Sales of motor vehicles and parts, however, saw the first decline since December 2012. Grocery and electronics stores also posted decreases.

Sales have been trending upwards since the beginning of 2013, the agency said, while in terms of volume, retail sales increased 0.5 per cent in July, the fourth increase in five months.

The gains were broad-based and "a tick stronger than the street's call," CIBC Economist Emanuella Enenajor said in a note to clients.

"With the economy springing back to life after June’s steep drop in activity, it’s no surprise to see shoppers back at the stores," she said.

"But while July’s 0.5 per cent increase in retail volumes adds to the good news for the month’s GDP reading, it doesn’t fully offset June’s losses, leaving consumer spending in the Q3 off to a slower start than Q2’s barnburner pace."

Ontario and Quebec had the strongest showings, while Alberta’s mere 0.1 per cent increase suggests the “bounce back” after this summer's floods in Calgary may not have been as great as expected, Enenajor said.

Sales in Ontario and Quebec — Canada's two most populous provinces — led the advance after weak June results.

"Sales have been choppy in recent months, in part due to severe flooding in Alberta and a construction strike in Quebec that appeared to disrupt activity in June," said RBC economist Nathan Janzen.

But the July bounce-back, coupled with the positive wholesale and manufacturing numbers as well as an end to the construction strike suggest consumer spending will grow "at a respectable rate of close to two per cent in the third quarter," he added.

In June, retail sales fell an unexpected 0.6 per cent to $40.1 billion, or 1.2 per cent in volume terms , partly reversing May's 1.8 per cent surge. It was also a bigger drop than the 0.4 per cent decline that economists had forecast.