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Retail sales signal slowdown, not recession

Aug. 20, 2008, Ottawa, Ont.- The value of Canadian retail sales
climbed 0.5 percent in June due to soaring gasoline prices, but
in volume terms sales fell, indicating consumer spending is
slowing but not enough to drag the economy into recession.

Aug. 20, 2008, Ottawa, Ont.- The value of Canadian retail sales
climbed 0.5 percent in June due to soaring gasoline prices, but
in volume terms sales fell, indicating consumer spending is
slowing but not enough to drag the economy into recession.

Statistics Canada said on Wednesday that retail sales fell
0.4 percent on the month when the effect of rising prices were
stripped out. Excluding auto sales, they jumped by a
bigger-than-expected 1.4 percent.

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Markets had expected overall sales to climb 0.4 percent and
to rise 0.5 percent without autos.

Despite signs of a softening in consumer spending, which
has been keeping the economy buoyant amid a slowdown in
exports, economists still expect gross domestic product to have
grown in June and in the second quarter.

"Weaker real sales detracted from our estimates for GDP
growth in June … Depressed confidence, sagging job markets
and cooling wealth gains are taking their toll on the Canadian
consumer," said Scotia Capital economist Derek Holt in a note.

Still, Scotia forecasts the economy to have grown by about
0.3 percent in June, and that growth in the April-June quarter
will come in at between 0.9 percent and 1 percent on a
quarter-over-quarter basis.

A separate Statscan report on Wednesday suggested continued
weakness in the third quarter as the composite leading
indicator was unchanged in July for the second straight month.
The housing index registered its sharpest fall since June 2002,
offsetting gains in most of the leading indicator's other
components.

The Canadian dollar fell against the U.S. dollar after the
data was released, trading at C$1.0635 to the greenback, or
94.03 U.S. cents, at midmorning, down from C$1.0610 to the U.S.
dollar, or 94.25 U.S. cents, at Tuesday's close.

Fears of a recession — defined as two consecutive quarters
of economic contraction — surfaced after gross domestic
product shrank 0.1 percent in May. The downturn followed a
rebound in April from a surprise first-quarter contraction.

With the economy growing, the Bank of Canada is expected to
keep interest rates on hold at 3 percent in September.

"The question is how much will consumption slide going
forward. Ultimately, we do not think the slowing in the
Canadian economy is out of line with what the bank has expected
and therefore the bank is likely to keep a neutral bias," said
Charmaine Buskas, senior economics strategist at TD Securities.

Gasoline station receipts climbed 4.2 percent in June due
to price hikes but sales of new and used vehicles were down,
resulting in a 0.1 percent decline for the automotive sector as
a whole.

Food inflation also took its toll on consumers in June as
food and beverage stores rang in 1.3 percent more sales than in
May. Clothing and accessory store sales jumped 2.5 percent.

The leading indicator in July showed consumer spending
continued to expand, although the housing index tumbled 2.9
percent due to fewer housing starts.

The only other indicator to decline was the average work
week in the manufacturing sector, which fell 0.5 percent.

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