Retail sales bounced back in March after a weak February, but sales looked soft excluding the auto sector, and the figures sent mixed signals about first-quarter growth.
The 0.4% increase in retail sales, reported by Statistics Canada on Wednesday, showed consumers spent more after a weak start to the year, but did not quite resume their 2011 role as the main drivers of growth.
Prompted by unusually warm weather, Canadians bought more cars and recreational vehicles such as boats and motorcycles in March. They also invested in clothing, footwear, sporting goods and garden and building equipment.
The increase was a notch above the 0.3% gain forecast in a Reuters poll and followed a 0.2% decline in February.
But stripping out motor-vehicle and parts dealers, sales were up just 0.1%. Gasoline sales fell, to the surprise of analysts, and there were gains in just seven of the 11 sub-sectors that Statistics Canada tracks.
Analysts were heartened by the 0.4% rise in the retail sales volume, used to calculate gross domestic product.
“The volume gains should translate into decent support for March GDP, which is on track for a roughly 0.4% advance at this point,” said Avery Shenfeld at CIBC World Markets.
Shenfeld sees first-quarter growth below 2% on an annualized basis, below the Bank of Canada’s 2.5% estimate. But he said the second quarter looks set for a stronger performance based on strong jobs gains and other data.
After the report, the Canadian dollar extended its losses against the U.S. currency, hitting a session low of $1.0246 to the greenback, or 97.60 cents US and slipping to $1.0280 by 11 a.m. (1500 GMT). Analysts said the market was more focused on Europe than on domestic data.
The troubles in Europe are set to be a major theme ahead of the Bank of Canada’s next rate decision on June 5. After freezing rates at 1% since September 2010, the bank last month signalled it might start raising rates soon because of a strengthening economy and firm inflation.
“The clear risk to this view is the ongoing stresses in the euro zone which, in an eerie sense of deja vu to last year, may cause the bank to step away from its hawkish rhetoric,” said David Tulk, chief macro strategist at TD Securities.
But the bank must also take account of the strength of the domestic economy, as reflected in the 1.2% increase in retail sales of motor vehicle and parts in March.
Sales at general merchandise stores rose for the third straight month, and were also up at building material and garden equipment dealers and sporting goods, hobby, book and music stores, Statscan said.
Compared with March 2011, overall retail sales were up 4.1%.
In a separate release on Wednesday, Statscan said the composite leading indicator rose 0.3% in April from March for the 10th consecutive monthly increase.
The components of the index related to household demand supported the increase in April, while manufacturing was lacklustre.
Statscan said it will discontinue the composite leading indicator following the release for April. It gave no immediate explanation for the change.