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Retail sales jump, but Q3 growth still seen slow

Tags: Retail

Retail sales jumped by an unexpectedly large 0.7 percent in July from June but that might have been the only spark in an otherwise sluggish third-quarter economic performance so far, analysts said Tuesday.

Retail sales hit a near record $38.99 billion, in part due to higher sales of new cars, Statistics Canada said.

The leap was far greater than the modest 0.1-percent advance forecast by market analysts, and it contrasts with other recent figures showing the economy is slowing. Canada releases July gross domestic product figures on Friday.

Healthy consumer spending has helped shield Canada from economic problems in the European Union and the United States over the past several years.

"While welcome, we continue to track a flat industry GDP estimate," said TD Securities analyst Mazen Issa, predicting third quarter growth on an annualized basis would be just 1.0 percent. The Bank of Canada's latest forecast calls for 2.0 percent growth this quarter.

"Heading forward, we expect the pace of consumer spending to improve, though it will remain sub par relative to historical standards, suggesting that other sectors of the economy -- such as net exports -- will need to play a larger role in driving growth," Issa said in a note to clients.

Canada posted its biggest trade deficit ever in July, while wholesale and manufacturing sales both fell.

By contrast, July's retail sales figure was the second highest on record after the $39.00 billion posted in March.

Statscan revised the decline in retail sales in June to 0.3 percent from the 0.4-percent drop it initially reported.

"A solid July report suggests that consumer spending growth picked up in the third quarter from the second quarter's tepid pace," said Robert Kavcic, an economist at BMO Capital Markets.

"Still, overall economic growth will be challenged to hit the Bank of Canada's 2 percent forecast for Q3," he said in a note to clients.

Gains were reported in eight of the 11 retail sectors that Statscan tracks, representing 72 percent of total retail trade, in July. In volume terms, retail sales rose by 0.6 percent.

Sales at new car dealers rose by 1.7 percent, the first notable increase since January 2012, while gasoline stations reported a 0.7 percent sales gain after two consecutive monthly declines.

Receipts at general merchandise stores rose by 1.5 percent. Sales at building material and garden equipment and supplies dealers were up by 1.9 percent after dropping in April, May and June.

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