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Canadian retail sales surge


July 22, 2009
By The Canadian Press

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shopping.jpg NEWS HIGHLIGHT

Canadian retail sales surge
Canadian retail sales rose much more than expected in May after a
surprise drop the previous month, Statistics Canada said Wednesday. 

July 22, 2009 – Canadian retail sales rose much more than expected in May after a
surprise drop the previous month, Statistics Canada said Wednesday. 

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The federal government can take at least a little of the credit for
the return of the Canadian shopper that is helping lead the country out
of recession.

New retail sales for May rose a surprisingly robust
1.2 per cent, Statistics Canada reported Wednesday, in yet another
clear signal that the economic free fall of the winter months is
braking quickly.

The eye-catching detail in the report was the
one per cent hike in the building and outdoor home-supplies stores
sector – double the previous month's rate – and a 1.1 per cent gain in
home centre and hardware store sales.

CIBC World Markets economist Krishen Rangasamy said Ottawa's $3-billion home renovation program, which pays back up to $1,350.

"That
definitely is having an effect," he said. "Since this home renovation
tax relief became available, you've seen sales in that particular
category increase in all months except for one (March)."

In the
June economic update, Ottawa reported Revenue Canada had received more
than 700,000 inquiries from Canadians about the tax credit.

More
generally, the sales report points to an economy that is slowing coming
out of one of the worst downturns since the Second World War.

Economists
have recently tracked the relative resiliency of the Canadian domestic
economy – as opposed to the carnage in the export sector and
manufacturing – that has helped keep Canada from falling as sharply or
deeply as the U.S.

A recent Bank of Montreal report credited the
difference in the two economies to the relative low level of job losses
that have occurred in Canada compared with the U.S. Using comparable
criteria, the paper argues that Canada's jobless rate of 8.6 per cent
is actually 2.4 points better than that in America.

With Canadian
banks relatively healthy and better household solvency rates, Canadian
consumers have been consistently outpacing their U.S. counterparts in
purchases of homes, autos and other goods for most of the past year.

"It
takes a willingness of borrowers to borrow and lenders to lend to turn
improved affordability of big-ticket items into drivers of consumer
spending and economic recovery, which is why Canada is racing ahead of
the United States," wrote economist Michael Gregory.

The Bank of
Canada is also buying into the story-line that the Canadian economy is
poised for a rebound, forecasting on Tuesday that output will grow by a
full three per cent in 2010.

Although the May retail numbers are
ancient history in terms of what is occurring in the economy now,
economists said it will have the effect of moderating the expected
gross domestic product contraction during the month to an expected 0.5
per cent.

TD Bank economist Pascal Gauthier agreed the data is
another indicator of recovery, but cautioned retail sales remain 5.8
per cent lower than peak levels of last September.

"Recovery
indeed, but the climb back up to pre-recession levels can reasonably be
expected to be relatively long and gradual," he said.

Still,
economists noted there were no weaknesses in the report. Not only was
the value of sales up to $34 billion, but the volume of sales also
increased by 0.7 per cent.

Statistics Canada said seven of eight
sectors reported growth, led by a 2.4 per cent increase in the
automotive sector and a 3.4 per cent hike in sales at new-car
dealerships. The exception was in clothing and accessories stores.

The gains spread coast to coast, with the exception of Prince Edward Island.

"The
big picture is that optimism is coming back," said CIBC's Rangasamy.
"Consumers have to feel optimistic before starting to shop again and
we've seen a come back, not only in this report, but in housing sales
as well."


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