B4

Eric Beauchesne
Canwest News Service

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OTTAWA - The Canadian economy may have escaped a recession so far but it exited the spring and entered the summer with a whimper not a bang, the latest reports on consumer spending and leading economic indicators show.

But the good news, at least for homebuyers, is that the weakness in the economy has and should continue to make housing more affordable, according to a separate report by a Canadian financial institution.

Retail sales rose 0.5 per cent in June, the fifth straight monthly gain, Statistics Canada reported Wednesday, with all parts of the country posting gains. But once the rise in prices, especially a 4.3 per cent surge at the gas pumps, is stripped out, the volume of sales, led by a slump in auto purchases, fell 0.4 per cent, the first drop since February.

"Canadians stayed away from car dealer lots in June, forced to spend much more of their hard-earned cash at gas stations," said CIBC World Markets economist Krishen Rangasamy.

And the outlook is for a further retrenchment by consumers despite lower gasoline prices, said BMOCapital Markets economist Douglas Porter.

"Softer job conditions, a cooling housing market, still-high gas prices and a raft of dire headlines have hammered consumer confidence, pointing to more modest spending growth in the months ahead," he said. "Even so, the outlook remains less downbeat than that facing the ultra-stressed U.S. consumer."

Statistics Canada also reported that its barometer of the short-term outlook for the economy was "flat" in July, the second straight month of no change following small increases in the previous two months, suggesting there will be little if any economic growth in the coming few months.

While only two components in the basket of 10 leading economic indicators fell last month, compared with six that fell in June, the July declines in housing and in the average workweek in manufacturing were large enough to offset small increases in the seven components that increased, Statistics Canada said.

The 2.9 per cent drop in the housing index was its steepest in seven years, and reflected the slump in the pace of housing construction, it noted.

However, as with consumer spending, the weakness in the Canadian housing market is still nowhere near the deepening depression in the U.S. housing market, analysts noted.