08/23/2011 08:37 EDT | Updated 10/24/2011 05:12 EDT

Retail Sales: Canada Posts Growth On Vibrant Auto Sector

OTTAWA - Employee pricing and other incentives helped lure Canadians into buying cars in June to help boost the country's retail sales by 0.7 per cent to $37.8 billion, the third straight monthly increase.

However, Statistics Canada said Tuesday excluding sales at vehicle and parts dealers, Canadian retail sales fell 0.1 per cent from May.

Bank of Montreal senior economist Benjamin Reitzes said the gains in auto sales came on the back of significant discounting by dealerships.

"Clearly that's not a sustainable trend, but underlying sales climbed for a second straight month, suggesting Canadian households haven't thrown in the towel yet," he said.

However Reitzes noted that the bank still expected cautious spending to continue amid the negative global economic news and higher household debt levels.

Higher sales and lower prices at new-car dealers accounted for most of the 1.6 per cent increase by volume.

New-car dealers helped power the gains with sales growth of 3.3 per cent, while sales at used-car dealers rose 10.4 per cent in June.

Gains were also reported at automotive parts, accessories and tire stores which gained 1.1 per cent and the "other motor vehicle dealers" category, which gained 1.1 per cent.

Overall, vehicle and parts dealers which gained 3.4 per cent.

Economist David Madani of Capital Economics noted that preliminary auto sales data of July suggests that the third quarter began on a soft note.

"Judging by the renewed financial market volatility and losses in consumer confidence, we might have to wait longer before we see a sustained rebound in the volume of retail sales," Madani wrote in a note to clients.

"The good news is that employment and labour income growth appear to be holding up for now. Rising food prices and high fuel costs, however, will continue to squeeze real disposable incomes and spending this year."

Bank of Canada governor Mark Carney said last week that the Canadian economy grew less than expected in the second quarter and warned the weaker than anticipated recovery in the U.S. would also slow growth.

Earlier this summer Carney had hinted he would look at raising interest rates this fall, however since the recent sovereign debt turmoil in Europe and recent economic data from the U.S. economists don't expect the central bank to raise rates until some time in 2012.

Statistics Canada said gains in retail sales for June were reported in six of 11 subsectors, representing 69 per cent of total retail sales.

Sporting goods and books stores saw the largest jump outside of motor vehicles sales, with sales up 1.9 per cent.

Building material and garden equipment and supplies dealers saw sales rise 2.1 per cent, a second consecutive increase as stronger sales of hardware and home renovation products continued.

Sales at food and beverage stores rose 0.3 per cent, after three months of declines, as sales at supermarkets and other grocery stores gained 0.4 per cent.

Statistics Canada reports retail sales rose in seven provinces in June.

Sales in Quebec rose 1.5 per cent, accounting for almost half of the national sales gain. Ontario retailers registered sales gains of 0.5 per cent, while sales in Saskatchewan rose 2.4.

The largest decline in dollar terms occurred in Alberta where sales fell 0.3 per cent.