UPDATE 2-Canada retail sales disappoint in September

Thu Nov 22, 2012 11:37am EST

* Retail sales up 0.1 pct, expectations were +0.5 pct
    * Third straight monthly increase
    * September, Q3 GDP on Nov. 30 looking tepid
    * C$ edges lower

 (Adds reaction, C$, implications for Sept/Q3 GDP)
    By Randall Palmer
    OTTAWA, Nov 22 (Reuters) - Canadian retail sales edged up by
0.1 percent in September from August, Statistics Canada said on
Thursday, a result which moved the Canadian dollar marginally
lower as the gain was substantially weaker than the expected 0.5
percent increase.
    It was the third straight monthly increase and took sales to
a record C$39.14 million ($39.14 million) from C$39.08 million
in August, seasonally adjusted, but it took the market aback.
    Twenty-three of 24 forecasters surveyed by Reuters expected
growth of 0.3 percent or more.
    The volume of sales, which is important in calculating real
growth in gross domestic product, showed no measurable increase.
Year-on-year, retail sales were 1.8 percent higher in dollar
terms and 1.3 percent in volume.  
    "In volume terms, the flat print adds little support for the
month's GDP (gross domestic product), coming after a weak
wholesale trade number earlier in the week," said Emanuella
Enenajor at CIBC World Markets. Wholesale trade fell 1.4 percent
in September. 
    Statscan is releasing September and third quarter real GDP
data on Nov. 30, and a number of economists said the third
quarter would struggle to hit the Bank of Canada's forecast of
annualized growth of 1.0 percent. 
    
    SQUISHY GDP?
    The central bank forecasts a strong pickup to at least 2.5
percent in the fourth quarter and beyond, but economists were
beginning to question that.
    "While the Bank (of Canada) expects a more robust rebound in
GDP in the next several quarters, we believe that this will not
occur until the second half of 2013," said Mazen Issa, Canada
macro strategist at TD Securities.
    "In the near term, consumption spending is expected to
remain a modest contributor to growth as households remain
cautious in the face of higher debt levels and a cooling housing
market."
    In the wake of the retail report, the Canadian dollar
 softened to C$0.9974 to the U.S. dollar, or $1.0026.
This was slightly higher than Wednesday's North American close
at C$0.9965, or $1.0035. Later in the morning, it recouped some
of its losses. 
    September's increase in retail sales was led by a 0.6
percent rise in the auto sector; excluding them sales were flat.
    "Half of the gain in retail spending is simply due to
purchasing new vehicles. It's hard to resist those interest free
loans on some models," said Sal Guatieri, senior economist at
BMO Capital Markets. 
    The miscellaneous category, which includes used merchandise,
office supplies and pet supplies, showed the biggest percentage
increase, at 2.5 percent. Clothing rose after three consecutive
falls, food was up for the fourth time in five months, and
electronics and appliances also increased.
    General merchandise stores and gasoline stations were down.
    ($1=$1.00 Canadian)

 (Additional reporting by Solarina Ho; editing by Sofina
Mirza-Reid)