July swoon shocks forecasters

By JAY BRYAN


Canada's recovery hit a speed bump in July, as retail sales broke a string of gains to shock forecasters with a decline.
"There's no other way to put it," said chief economist Derek Holt at Scotia Capital: all of Canada's leading forecasters, including him, "have egg on our faces."
The consensus view was that retail sales would build on June's blazing one-per-cent monthly gain with a robust 0.7-per-cent rise in July. Instead, merchants rang up a 0.6-per-cent drop in sales.

But dramatic as this was, its significance is questionable. Nearly all of the decline was caused by lower prices, with the actual volume of sales falling only a little short of expectations: minus 0.1 per cent instead of the forecast gain of 0.1 per cent.
With the price-adjusted volume of sales not changing much, retail sales won't prevent economic growth in July from achieving a healthy pace, driven by manufacturing and wholesale trade.
And the outlook for retailing still looks positive. A three-month average of sales continues to show an uptrend, suggesting that the July surprise will be followed by renewed growth, believes Toronto-Dominion Bank analyst Grant Bishop.
Two key reasons for July's shortfall were temporary events: a substantial drop in the price of gas (which has since been reversed) and the impact of unusually poor weather on food and beverage sales during barbecue season.
Another disappointment is more puzzling: while the number of cars sold jumped by a strong five per cent in July, total sales value inched up by just 0.2 per cent.
Some possible explanations include heavy discounting in a weak auto market and what Bishop calls the "steak to hamburger shift" during a period of economic hardship. Bishop assumes that some customers shifted from luxury vehicles toward plainer cars while others decided to save on gas by buying smaller ones.
Bishop's moving average, intended to show the underlying trend by smoothing out month-to-month hiccups caused by temporary factors like those in July, shows Canadian consumers still increasing spending at a substantial rate.
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Comments:
Way to go Canada..economic recovery is on the way.Guess a worlwide reaction to this will follow.