Autos bolster retail sales

flovestock

Louise Egan
Ottawa— Reuters
Last updated Tuesday, Jun. 21, 2011 11:26AM EDT

Canadian consumers are keeping a tighter grip on their cash, retail sales data for April shows, as households remain deeply in debt and are no longer driving economic growth.

Statistics Canada said Tuesday that retail sales rose 0.3 per cent in April, up from the 0.1 per cent decline in March but below the 0.5 per cent market forecast. Sales rose 0.2 per cent in volume terms in the month and were flat excluding autos.

That softening trend is seen no matter which way you slice it,” said Leslie Preston, economic analyst at TD Economics.

Ms. Preston said year-on-year measures of sales “have all decelerated significantly since earlier in the recovery and are off their pre-recession pace.”

On a more upbeat note, the leading indicator rose 1 per cent in May, twice the rate expected, due to strength in the manufacturing sector.

That may have helped lift the Canadian dollar against its U.S. counterpart Tuesday morning, although the foreign exchange market is largely fixated on the Greek debt crisis. The currency rose as high as $0.9746 (Canadian) to the U.S. dollar, or $1.0261 (U.S.), just after the data was released, up from Monday’s North American finish of $0.9802 (Canadian) to the U.S. dollar, or $1.0202 (U.S.). It later pared gains.

Retail sales have disappointed market expectations every month since December 2010.

The Bank of Canada has long predicted the softening of consumer spending, saying it would be replaced by exports and business investment as the primary forces of growth.

The bank has also warned that household debt levels are at an unprecedented high, while seeing early signs that debt is easing and becoming more compatible with income growth.

The soft patch in the economy combined with a highly uncertain global outlook means the Bank of Canada will be in no rush to raise its key interest rate from the current ultra-low 1 per cent, analysts said.

“There is certainly little in this report to give the Bank of Canada any reason to hike rates before 2012,” Ms. Preston said.

Although sales rose in six of 11 retail sub-sectors, the biggest contributors to the rise were motor-vehicle and parts dealers, which reported a 1.7 per cent jump in receipts.

In the 12 months to April, sales climbed 3.6 per cent.

In the leading indicator for May, as in the previous month, all three of the manufacturing components strengthened: demand from the aerospace industry boosted new orders, the ratio of shipments to inventories posted its fourth consecutive gain, and the average work week lengthened.

Components related to household spending were mixed and financial indicators continued to slow, Statscan said.

Overall, nine of the 10 components rose in May and one, housing, declined.