Canada August retail sales up 0.4% on autos, drops across majority of sectors

By Promit Mukherjee

OTTAWA, Oct 25 (Reuters) - Canada's retail sales in August increased marginally and missed expectations as consumer spending showed strains across majority of sectors, data showed on Friday.

Retail sales, which comprise motor vehicles, clothing, furniture, food and beverages among others, grew by 0.4% in August on a monthly basis, slower than growth of 0.9% seen in the previous month.

Analysts had forecast growth of 0.5% for August and had estimated sales excluding automotive and parts to be at 0.3%.

Excluding sales of motor vehicles and at automotive parts dealers, sales dropped by 0.7% from a revised 0.3% growth in July, Statistics Canada said.

"Today's report suggests that consumer spending remains patchy, and that further reductions in interest rates will likely be needed to bring a sustained acceleration," Andrew Grantham, senior economist at CIBC wrote in a note.

September's retail numbers, which survey only half of the respondents for a preliminary estimate and are prone to revision, showed that sales likely grew by 0.4%, a flash estimate by Statscan said.

The retail sales and the projection give an indication of how consumer spending has been in the month and partly informs the direction of Gross Domestic Product, a critical figure closely watched by the Bank of Canada and economists.

The BoC reduced its key policy rate by a jumbo 50 basis points this week as inflation has come below the mid-point of the bank's 1% t 3% target range, but concerns around growth have taken centre stage.

GDP data for August is due next week and economists expect growth in Canada for the rest of the year to be likely slower than the central bank's projections.

August retail sales totaled C$66.63 billion ($48.14 billion) and saw an increase in four out of nine subsectors. In volume terms, total retail sales grew 0.7%.

The Canadian dollar was trading 0.9% firmer to 1.3842 against the U.S. dollar, or 72.24 U.S. cents.

The two-year government bond yield dropped by 2.9 basis points to 3.175%.

Sales were led by a 3.5% increase in vehicles and vehicle parts, which account for more than a fourth of total sales. Food and beverages, which contribute roughly a fifth to the overall retail sales, saw the biggest drop of 1.5%. Furniture, home furnishings, electronics and appliances sales dropped by 1.4%, Statscan said. ($1 = 1.3840 Canadian dollars) (Reporting by Promit Mukherjee; Additional reporting by Dale Smith; Editing by Nick Zieminski)