Canadian investors woke up to mixed bag of news on wholesale and retails sales.

Statistics Canada reported that consumer spending in retail stores fell 0.8% in September to $26.4 billion, the first decline in five months. This followed a 0.3% sales increase in August.

Despite September’s decline, retail sales advanced 1.1% in the third quarter, after remaining essentially unchanged in the second (-0.1%). Previously, retail sales had been generally increasing since the fall of 2001.

RBC Financial reports that retail sales were much weaker than consensus expectations had called for over the month of September, gaining 1.1% in the third quarter over the previous quarter.

It notes that declines were focused in vehicle dealers, household furniture and appliance stores, gas stations, grocery stores, and department stores. Gains were posted in clothing stores, drug stores, household furnishings and auto parts.

“Despite late summer weakness, growth in retail spending should have considerable support going into the important Christmas holiday season for two reasons. First, household finances are arguably in the best shape in which they have been for some time now. Second, considerable pent-up demand remains in Canada’s housing and consumer markets,” RBC says. “Healthier household finances are marked by very high levels of liquidity, improving job markets, stronger equity markets, large house price gains, and a stable ratio of debt to assets.”

TD Bank admits that while this morning’s retail sales report came in on a decidedly sour note, the broad trend in retail activity, “though by no means stellar, is not nearly as disheartening as the monthly reading would suggest”. It says that real consumer spending is still on track for a healthy 3%-3.5% annualized gain in the third quarter, in spite of today’s weak reading.

In a separate release, StatsCan reported wholesalers sold goods and services worth $36.6 billion in September, an increase of 6.1%. All trade groups posted an increase.

However, StatsCan says only six of the nine trade groups that lost ground last month as a result of the blackout bounced back. Sales have been very volatile the last few months. In August, wholesalers saw their sales decline 4.1%. Ontario wholesalers bore the brunt of the decline, as a result of manufacturing production stoppages due to the blackout in Ontario and part of the United States.

Ontario accounts for approximately half of Canadian wholesale sales. With their activities returning to normal in September, Ontario wholesalers posted an 8.7% increase in sales, which greatly contributed to the rise at the national level. Excluding Ontario, wholesale sales would have increased 3.6%.

The auto sector was the strongest area. “Note that wholesale trade actually makes up a larger share of GDP than retail trade, so net-net, today’s numbers are broadly neutral versus expectations for monthly GDP,” says BMO Nesbitt Burns.

“While retail sales were weak, the wholesale report is further evidence that the economy fully rebounded in September from the blackout, although there was little net growth over the two-month span for overall activity,” says Nesbitt. “It appears that GDP snapped back by at least 0.8% in September, but growth for all of Q3 was probably just a shade over 2% (compared with well over 7% in the U.S.). The softness in retail is a warning sign that growth could remain less than stellar in Q4, although we are expecting GDP to perk up to 3.8% in the current quarter.”