August retail sales grew just 0.2%, reversing an earlier decline, but still disappointing economists.

TD Bank economists call the results “disappointing”, noting that they “not only fell well short of financial-market expectations of a 0.7% gain, but even failed to recoup the 0.3% dip recorded in July.”

CIBC World Markets calls sales “surprisingly soft”. Although it notes that, excluding vehicle dealers, retail sales were in line with expectations, up a moderate 0.3%. There were strong gains in gas stations and drug store, but furniture, appliance and clothing stores were flat and department stores were weak.

“But, before losing any sleep over the pause in retail activity in the July-August period, it is important to take note that the level of retail spending in August remained a sizeable 6.4% above its year-earlier level. Thus, consumers seemingly opted to take a break from shopping malls during the usually hot summer of 2002,” suggests TD.

“Today’s data do not take away from another good month overall for Canada’s economy in August, which we expect registered a 0.3% increase in real GDP on the back of expansions in wholesale trade, business-related services, construction and manufacturing. Nor, do they alter our view that the consumer spending machine is far from sputtering,” says TD. “Most importantly, still-robust job creation is lighting a fire under personal income growth, which, in turn, should help to prop up both confidence and spending. But, with demand for big-ticket items likely largely exhausted following the unsustainable spending spree on cars and housing since late 2001, and with consumers facing high indebtedness and cumulative declines in equity valuations over the past few years, the drive over the near term is likely to represent more a cruise than a dash.”

CIBC says that the weak numbers “threw a bit of cold water on the outlook for August GDP, after the earlier hot numbers from manufacturing and retailing”. It says that for the first time this year, Canada isn’t running ahead of the US growth rate. “Looking ahead, Canada’s manufacturing sector is likely to lose steam, taking GDP growth below 3%. But the downside risks to consumer spending and retailing is not as readily apparent on this side of the border, given the superior job growth to date and the fact that in Canada, household losses in the stock market were outweighed by gains in housing and other assets.”