Canadian Retail Sales Growth

By Fergal Smith

TORONTO (Reuters) – Canadian retail sales grew by 0.9% in July from June, led by higher sales at motor vehicle and parts dealers, while sales likely climbed further in August, data from Statistics Canada showed on Friday.

The increase in retail sales, to C$66.4 billion (approximately $49.0 billion), eclipsed estimates for a gain of 0.6% and could ease fears about the strength of the domestic economy.

Sales were up in seven of nine subsectors, representing 84.6% of retail trade, with sales at motor vehicle and parts dealers climbing 2.2%. In volume terms, retail sales increased 1.0%.

> "The rebound in retail sales volumes in July will be welcome news to the Bank of Canada, which has been concerned about the downside risks to the economy," said Olivia Cross, North America economist at Capital Economics, in a note.

The Bank of Canada has cut interest rates three times since June, moving in quarter-percentage-point steps but has stated it could shift to larger cuts if the economy needs a boost.

Chances of a half-percentage-point move in October dipped to 56% from 59% prior to the retail sales report, according to swaps market data.

Core retail sales, which exclude gasoline stations, fuel vendors, and motor vehicle and parts dealers, were up 0.6%, marking their second consecutive monthly increase. The gain for core sales was led by food and beverage retailers and general merchandise retailers.

A preliminary estimate showed sales rising 0.5% in August.

Despite these gains, per-capita sales 'still look weak' and the deterioration in the labor market points to weaker discretionary consumption ahead, mentioned Katherine Judge, a senior economist at CIBC Capital Markets, in a note.

Canada has seen historically high population growth in recent years.

The Canadian dollar remained little changed at 1.3560 per U.S. dollar, or 73.75 U.S. cents.