http://news.excite.com/news/r/000323/13/business-economy-canada-retail

Updated 1:58 PM ET March 23, 2000

By Andrea Hopkins

OTTAWA (Reuters) - Canadian retail sales were unchanged in January as consumers relaxed after stockpiling for Y2K in December, but spending will likely bounce back in coming months, analysts said Thursday.

January's flat sales, which followed healthy gains in November and December, bucked analysts' expectations of a 0.4 percent increase.

But Sal Guatieri, senior economist at Bank of Montreal, said underlying spending remains strong.

"Some of the weakness just reflects lower prices for goods. In volume terms, or price-adjusted terms, retail sales were actually up 0.6 percent in January, and that followed a big increase in volumes in December," Guatieri said.

"As well, you saw a bit of Y2K hangover effect in January. A lot of households must have stockpiled food and beverage products in December, fearing disruption of supplies and they simply cut back on those purchases in January."

Statistics Canada said January's strong gains in general merchandise and clothing stores were offset by large declines in food stores, liquor stores, and auto parts, accessories and service stores -- all of which may have had their December sales buoyed by millennial festivities or Y2K concerns.

Food store sales fell 4.0 percent after rising 2.0 percent in December, while sales in liquor and beer stores dropped 5.9 percent in the month.

But the general merchandise sector posted a 3.8 percent gain in sales in January, its largest increase in 12 months, while clothing store sales rose 2.7 percent and furniture sales climbed 2.1 percent.

Both Guatieri and Craig Wright, deputy chief economist at Royal Bank of Canada, said sales should bounce back by about half a percent in February, as consumer confidence continues strong.

"I suspect we should see more gains and February and March," Wright told Reuters. "Unemployment rate is still relatively low, so you get incomes, confidence and employment and that all supports consumer spending. So I think we could be in for another good quarter for the consumer in the first quarter."

Guatieri said the auto sector may remain weak in February, as indicated by early sales numbers from dealers, but other areas should remain quite robust.

He said consumer spending should start to slow in the second half of the year as recent interest rate hikes in Canada and the United States dampen borrowing.

"The higher interest rates will certainly cut into spending power... that's when we're expecting domestic demand to slow -- not considerably, but at least to a more moderate pace."

-- viewer (justp@ssing.by), March 23, 2000