Canadian retail sales in January rebounded from a big December drop by growing 1.9%, Statistics Canada said Friday.

The January increase followed December’s 5.2% plunge, which was the largest monthly decline in more than 15 years.

Economists had forecast a 0.7% rise in January from the previous month.

StatsCan said sales rose in five of the eight retail sectors, led by a 3.8% increase in the automotive sector.

The main contributor to the increase in the automotive sector in January was a 6.4% rise in the value of sales at new car dealers, following a 15.1% decline the previous month.

But this upswing could be short-lived: automakers have already indicated that February sales were lower, notes Douglas Porter, deputy chief economist at BMO Capital Markets.

“Retail is likely to slip back again,” he said.

Sales at gasoline stations rose 2.6%, while used and recreational motor vehicle and parts dealers saw a 1.8% decline.

Overall retail sales, excluding the auto sector and gas sales, rose 1.1% — a stronger gain than expected following December’s 2% drop, according to Paul Ferley, assistant chief economist at RBC Economics Research.

“The retail sales report holds the promise of preventing any further significant deterioration in the overall January GDP growth rate relative to the December’s drop of 1%,” Ferley said.

At CIBC World Markets, the outlook is not so rosy. With other indicators showing significant weakness, economist Krishen Rangasamy expects January’s overall economic performance to be worse than December’s.

“Dismal volumes from factory shipments and wholesale trade swamped the growth in retail volumes, and that, coupled with the stream of job and income losses, suggest that January is likely to be worse than the prior month in terms of GDP contraction,” he said.

Still, Rangasamy admits that the retail sales report is encouraging. “It’s a reminder that Canadian consumers are still in the picture despite being sideswiped by income and job losses.”

Separately, StatsCan said the number of new motor vehicles sold rose 5.5% to 119,231 units in January.

Monthly sales have averaged close to 120,000 units since November 2008, whereas the average over the last three years was about 140,000 units.

IE