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Economists and central bank officials may have declared an end to the recession, but Canadian consumers aren't so sure.

Retail sales unexpectedly fell 0.6 per cent in July on lower gasoline prices, Statistics Canada said yesterday. Volumes slipped too, as purchases fell for everything from groceries and booze to electronics and appliances.

Some of the decline was likely weather-related, as the coldest July in years put a damper on spending. But job losses that continued in July may also be a factor.

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"While Canada is out of recession, consumers don't seem all that convinced," said CIBC World Markets Inc. economist Krishen Rangasamy. "The consumer is still cautious, and that's in line with what happened in the labour market."

The job market did recover in August, but "you need more than one month's gain to get consumers to open up their wallets," said Mr. Rangasamy, who believes the recession ended in June.

Retail sales were 4.9 per cent lower in July than year-earlier levels. The biggest year-over-year drops have happened at gas stations, computer stores, furniture outlets and home electronics retailers. Alberta has seen the sharpest annual drop.

In volume terms, sales slid 0.1 per cent.

Economists called the report "disappointing," but are sticking with their forecast for growth in overall economic activity in July.

August and September will likely tally stronger sales amid further signs of a recovery, economists said.

"We're starting to turn the corner on jobs - and income growth is the most important thing for consumer spending," said Sheryl King, head economist at Merrill Lynch Canada. Stronger equity markets and stabilization in the housing market should also underpin consumer confidence, she said.

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Retail sales have risen in five of the first seven months of this year after suffering steep drops at the end of last year.

Gas station sales fell 3.4 per cent from June as lower pump prices eroded their revenues. Sales of new cars - which had been expected to increase - were little changed at a 0.2-per-cent gain as consumers opted for lower-priced vehicles, Statscan said.

Supermarket sales slid 1.6 per cent while beer, wine and liquor stores slipped 1.4 per cent. "Unseasonably poor weather in many parts of the country may have affected sales at these types of stores in July," the agency noted.

Home electronics and appliance store sales fell 2.5 per cent.

Pharmacies and personal care stores tallied the biggest increase, rising 1.1 per cent and continuing their long-term climb.

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About the Author

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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