Retail sales rose 0.5% in July as child-care benefit cheques arrived

Canadian retail sales rose by 0.5 per cent in July, according to Statistics Canada, and economists owe part of theboost to the arrival of lump-sum payments from the enhanced universal child-care benefit.

Consumers are spending more on motor vehicles and parts, clothing and shoes and sporting goods, the federaldata agency said Wednesday.

• Universal Child Care Benefit payments: How you can put them to good use

The agency said spending on pickup trucks was especially strong, while spending on cars slid and sales of other auto accessories tended to be flat.

It's the third month that retail sales have risen in Canada, a good sign for the economy through the rest of the year.

"Low interest rates and low gas prices have supported sales activity throughout the year, but the retroactive lump-sum payments from the enhanced universal child-care benefits were an added cherry on top, helping support theretailsector in July," TD economic analyst Admir Kolaj said in a note to clients.

Kolaj said the effect of the benefits payment could continue into another month as most cheques arrived late in July.

Low loonie raises prices

Retail spending have risen 1.5 per centsinceJuly 2014, with lower gas prices leading to a 12.8 per cent drop in sales at gasoline stations in the past year.

At the same time, sales at used-car dealers increased20 per cent in the year, sales of clothing were up6.5 per cent, and sales of sporting goods, books and hobbies rosefour per cent.

The low loonie means prices for many imported goods are rising, but RBC calculates the volume of sales is still up about 0.2 per cent in July.

"We expect spending on goods will continue to grow reflecting year-to-date resilience in labour markets and, in the near term, a sizable jump in household disposable incomes in late July from the federal government's distribution of retroactive UCCB payments," said RBC senior economist Nathan Janzen.

RBC predicts a 2.8 per cent increase in consumer sales in the third quarter, following on a 2.3 per cent gain in the second quarter.

The only constraining factor later in the year might be potentially rising interest rates and already high consumer debt.