Auto sales rebound drives September retail trade

Retail sales in Canada rebounded by a seasonally adjusted 1.1 per cent from August, the biggest jump in eight months, Statistics Canada said Tuesday.

Sales by new car dealers were up for the first time since January, accounting for most of this growth, the federal government agency said.

The September sales figures were much better than the increase of 0.4 per cent that economists had been forecasting.

Even after factoring out sales at new car dealers, used and recreational motor vehicle and parts dealers, Canada's retail activity was still up by 0.8 per cent, topping economists' expectations for an increase of 0.2 per cent from August.

Sales in the automotive sector were 2.2 per cent higher in September, largely owing to a 2.9 per cent increase in sales by new car dealers.

Higher pump prices pushed sales by gasoline stations in September up by 1.7 per cent, continuing a trend that had been seen since September 2007.

Rising food prices led to a 1.2 per cent increase in sales at food and beverage sector stores, and a 1.6 per cent increase at general merchandise stores.

Sales fell by 0.7 per cent in the building and outdoor home supplies stores sector. That marked the first drop for the sector since April 2008.

TD Bank economist Dina Cover said the growth in retail sales is not expected to continue at September's pace.

"Indeed, in September, consumer confidence fell to levels not seen since 1990, suggesting that consumers will keep their purse strings a little tighter," Cover said.

"Moreover, spillover effects from tight credit markets, an expected slowdown in employment growth and a further cooling in the housing market are also likely to result in weaker retail sales growth in the coming months.

RBC economist Josh Heller called the retail report "respectable" but added that downside risks to the economy have been increasing.

"Continued credit market strains combined with a deteriorating global economic backdrop will likely result in the Bank of Canada cutting interest rates," Heller said.