MNI DATA IMPACT: Canada Retail Sales +0.4%, Lags Expectations>

By Greg Quinn and Anahita Alinejad

     OTTAWA (MNI) - Canadian retail sales grew less than expected in 

July, as consumers spent more on new cars while cutting back on clothing 

and home improvement supplies. 

     The 0.4% increase lagged the 0.7% MNI median economist forecast. 

Statistics Canada's report Friday also cut the estimate for June to a 

0.1% decline from the earlier estimate sales were little changed. 

     Excluding motor vehicles and parts, sales declined 0.1%, also 

less than the MNI median calling for a 0.4% increase. 

     The first major indicator of consumer demand for the third quarter 

signals continued weakness from the previous three months when household 

spending grew at the weakest pace in seven years. After removing price 

changes such as a 3% gain at gasoline stations, the so-called volume of 

sales was flat, and that measure is a closer indication of the 

contribution to gross domestic product. 

     The pace of consumer spending may be a big factor in whether the 

Bank of Canada cuts interest rates later this year to match earlier 

moves by other major global central banks. Domestic demand had kept 

Canada's economy close to full capacity over the last year amid record 

low unemployment, while U.S.-China trade tensions threaten exports and 

investment. 

     Even with historically low interest rates, consumer spending 

power is under pressure from record debt loads. The cost of carrying 

loans like mortgages reached a record 15% of household disposable income 

in the second quarter, driven by even the small interest payments on 

debts that have grown larger than Canada's GDP.

     Sales did rise in six of 11 categories tracked by Statistics 

Canada, including a 1.5% increase in motor vehicles and parts. Health 

and personal store sales rose 2.6%, the fifth gain in six months.

     The weakness came from a 3.2% decline at homebuilding and garden 

supply stores and a 2% decline at clothing retailers. Used car sales 

also fell by 1% in July.

     From a year earlier, total retail sales rose 1.2%, while sales 

volumes were unchanged. 

--MNI Ottawa Bureau +1-613-314-9647; greg.quinn@marketnews.com 

     [TOPICS: MACDS$,M$C$$$,MAUDR$]