Canada may be set for growth spurt after July retail bounce

Canadian retail sales rose a solid 0.6 percent in July, making up for losses in June and setting up the economy to show firm growth in the month and in the third quarter after a recent rough patch.

Sales growth was pumped largely by gasoline stations, where both prices and volumes rose, according to a Statistics Canada report on Tuesday.

In volume terms, retail sales rose 0.5 percent in the month.

The July rebound matched the median forecast in a Reuters poll. Analysts had foreseen a bounce-back after sales slumped by 0.6 percent in June, hit partly by severe floods in Alberta and a two-week strike by construction workers in Quebec.

Canada's economy looks set to speed up after annualized growth slowed to 1.7 percent in the second quarter from 2.2 percent in the first, and gross domestic product in the month of June actually shrank 0.5 percent

RBC Economics economist Nathan Janzen sees July GDP growth at a solid 0.7 percent.

'In turn, the strength in July GDP would be consistent with our expectation that GDP growth in the third quarter rebounded to a 3.4 (annualized) percent rate,' he wrote in a note to clients.

Mazen Issa, an economist at TD Securities, sees third quarter growth of just below 2 percent.

Both estimates are below the Bank of Canada's latest projection of 3.8 percent expansion in the third quarter. But the second quarter turned out to be stronger than the central bank's 1.0 percent estimate, so overall the performance over the two quarters may not substantially change its outlook.

'The Bank of Canada will look through the volatility in the data, and over the latter half of the year we see the economy straddling its trend rate of growth owing to a slightly softer consumer spending profile (around 2 percent) and a slow rotation to exports and investment,' Issa said.

The Bank of Canada is expected to hold its key interest rate steady until late 2014.

Gains were reported in eight of the 11 retail subsectors tracked by Statistics Canada in July, representing 52 percent of total retail activity.

Gasoline stations had the biggest jump in sales, up 3.2 percent due to higher prices and volumes. General merchandise stores, clothing retailers and health and personal-care stores also posted significant gains.

Canadians bought fewer new cars in July, however, pushing down overall sales of motor vehicles and parts by 0.6 percent after six straight months of gains.

Supermarket sales also weakened, resulting in a 0.3 percent drop in receipts at food and beverage stores.

Stripping out sales by motor vehicles and parts dealers, retail sales rose by 1.0 percent. Excluding autos and gasoline, sales were up 0.6 percent.

Overall retail sales were 3 percent higher than in July 2012.