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September retail sales rise, but are still weaker over same time last year

TORONTO - Canadian consumers surprised economists with how much spending they did in September, but retail sales remained weaker than a year ago and gave little comfort to many retailers who fear the coming holiday season will be slow.

TORONTO - Canadian consumers surprised economists with how much spending they did in September, but retail sales remained weaker than a year ago and gave little comfort to many retailers who fear the coming holiday season will be slow.

Statistics Canada said Monday that retail sales rose to $34.9 billion in September, up by one per cent from August, on widespread increases across six of eight sectors.

While that was a notable increase and higher than consensus economic forecasts, the sales numbers were also 3.3 per cent lower than the same period last year.

"It's an improvement from the fairly hefty decline you saw in the last year, but it's still, at least on a year-over-year basis, indicating that conditions remain weak," said Paul Ferley, assistant chief economist at Royal Bank (TSX:RY).

"When you start looking at the month-over-month (results) it's showing more positive gains over the last two months."

Retail sales have been rising since the beginning of 2009, following a sharp decline at the end of 2008 as Canada was dragged down by a global recession that began to tighten its grip in last year's fourth quarter.

The gradual recovery has left some retailers, particularly in clothing, jittery for the crucial October-December quarter. Some have complained that sales have been slow, and they've had to slash their prices to encourage shoppers to spend.

In September, apparel sales were down 0.5 per cent over the same time last year.

"It's going to be a constrained environment," said Stewart Hall, an economist at HSBC Global Research.

"What spending is taking place seems to be in response to either significant deals to be had in the auto sector or... the purchase of a home. For general merchandise and retail shopping, the holiday season is going to continue to present some challenges."

Month-over-month, September sales were pushed higher by the food-and-beverage stores sector, mainly supermarkets, where sales rose 1.3 per cent.

General merchandise stores sales rose 1.9 per cent over August while miscellaneous retailers rose 1.7 per cent in September after four flat months.

Furniture, home furnishings and electronics stores had a 1.2 per cent increase from August, but remained 7.9 per cent below September 2008.

Mike Arnett, president of retail at Canadian Tire Corp. (TSX:CTC.A), said shoppers have remained cautious this year, particularly when it comes to higher-priced items.

"If they have more than one reason not to spend, if there's poor weather, they look for ways to put things off. We saw that through the course of the summer," he said.

The retailer has decided to lure shoppers by focusing on "every day essentials," often lower priced items.

"Those are the things that make it onto the shopping list most frequently and generate the determination of where to shop," he said, noting that the goal is to get shoppers into the store to buy extra items.

Meanwhile, the automotive sector was up one per cent, with all components recording higher sales from August but new car dealers lagging with only 0.6 per cent growth. In contrast, there was two per cent growth at the category that includes used and recreational vehicles and parts dealers.

Excluding the automotive sector, retail sales rose 1.1 per cent in September, the largest one-month gain since January 2009.

Building and outdoor home supplies stores experienced a 0.2 per cent decline, while clothing and accessories stores were down 0.1 per cent.

Overall, September was the seventh increase in nine months and above expectations of a 0.6 per cent increase, according to forecasts compiled by TD Bank. In volume terms, retail sales increased 1.2 per cent.

"Whether it's housing, auto sales or these retail sales figures, there is mounting evidence that the domestic side of Canada's economy is in full recovery mode," said Doug Porter, deputy chief economist at BMO Capital Markets.

"Unfortunately, the weakness in exports is likely to persist, as it is highly unlikely that U.S. consumers will be matching the comeback by Canadian consumers any time soon. Thus, we will continue to see this heavily lopsided recovery, between solid domestic spending activity and soggy growth overall."

Retail sales rose in eight provinces in September. Quebec, with a 2.2 per cent increase, was the largest contributor with its fourth rise in the last five months.

The two provinces in which retail sales did not increase were Saskatchewan and Alberta. Sales fell 0.9 per cent in Saskatchewan in September, partially offsetting the increase in August. In Alberta sales were flat, following two months of declines.

Scotiabank (TSX:BNS) deputy chief economist Aron Gampel said the latest results show that the Canadian economy is recovering from the recession.

"You look on a trend basis, you continue to see right across the country that more provinces and regions are now showing better signs of a revival in consumer spending," Gampel said.

"The automobile industry has been a huge beneficiary of the improving retail appetite, but we're likely to see more and more of it spreading to other areas as well."

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