August retail sales came in a bit stronger than expected, despite the power blackout in Ontario. Retail sales increased 0.3% during the month to a record $26.7 billion, marking the fourth consecutive month that sales have advanced.

July’s sales were also revised higher to 1%.

According to Statistics Canada, August’s increase reached 0.9% after excluding sales by motor and recreational vehicle dealers from total retail. Shoppers spent more in furniture (+2.3%), general merchandise (+0.9%) and food (+0.5%) stores, while staying away from clothing (-1.8%) and drug (-0.7%) stores.

Despite the August increase, not all economists are impressed. “While the sales result was a small positive, it hardly smacks of strength,” claims BMO Nesbitt Burns. “Much of the ex-auto gain reflected a 5.5% pop in service station receipts, due to the flare-up in gas prices in the month. Notably, inflation-adjusted sales actually slipped 0.1% in the month, albeit following a strong 0.9% rise in the prior month.”

RBC Financial says, “This leaves our third quarter real GDP forecast on track for a 2.5% gain, well below what’s expected from the U.S. but above Canada’s second quarter when growth slipped 0.3%.”

“Having earlier seen the disastrous results for manufacturing shipments and wholesale trade, we were braced for a disappointing report today,” says CIBC World Markets. “That retail sales managed to increase breathes a sigh of relief into the monthly GDP outlook for August. Still, with factories, wholesalers and utilities reeling in the wake of the Ontario power outage, monthly output is poised to reverse a very good deal of July’s 0.6% gain, leading to a sub-3%growth tally for Q3 as a whole.”

In a separate release, StatsCan reported that the composite leading index for Septemer rose 0.7%. That’s better than the 0.5% expected by markets.

Growth also continued to broaden, as seven of the ten components rose, one more than in August.

These increases, the largest since early 2002, have already begun to be translated into higher output and employment. The housing-related components again spearheaded growth, reinforced by a strong advance by the U.S. leading index. The recent slump in manufacturing eased slightly.

“Today’s number stands in contrast to the September leading indicator results in the U.S., out earlier this week, which showed the economy slowing down a bit there. Canada is experiencing a pick-up in response to stronger-than-expected U.S. third quarter demand that is adding to an already healthy domestic economy,” RBC says.

“The steady retail sales performance is a modest positive surprise, but doesn’t take away from the fact that the economy overall slipped sharply in August due to the blackout,” Nesbitt notes. “However, growth seems to have snapped right back in September.”

Retail trade
http://www.statcan.ca/Daily/English/031022/d031022a.htm

Leading indicators
http://www.statcan.ca/Daily/English/031022/d031022b.htm