Retail sales started the third quarter on a slightly softer note than expected with a 0.3 percent increase in July, below Econoday's consensus of 0.4 percent. Although sales growth accelerated from 0.1 percent in June, it was all price related as volumes contracted 0.2 percent. Sales increased 2.0 percent year-over-year, compared with a 0.6 percent retreat the previous month.

The preliminary estimate for August points to a decline of 0.3 percent, which, along with the fact that real sales contracted for the third consecutive month in July, should comfort the Bank of Canada in its assessment of a cooling household spending.

In its discussions leading up to September monetary policy meeting that resulted in the decision to leave the key rate unchanged at 5.0 percent, the Bank of Canada's Governing Council spent"significant time" debating the evolution of household spending. It noted demand weakened in interest-rate-sensitive goods such as housing and durable goods, while it was flat in services in the second quarter. This slowdown was evidence of the impact of tightening in its view.

In July, nominal sales increases were widespread across seven of nine subsectors, led by a 1.3 percent advance in food and beverages. The port strike in British Columbia impacted about 17 percent of retailers across the country, especially motor vehicles and parts dealers.

The declines occurred in two important categories in July: gasoline stations and fuel vendor receipts were down 0.7 percent and motor vehicles and parts sales fell 1.6 percent. Excluding these two subsectors, core sales rose 1.3 percent.

The central bank will take comfort in contracting real sales. However, August CPI data are leaving further rate hikes on the table. The pace of inflation accelerated to 4.0 percent from 3.3 percent. Core measures showed price gains also picked up. In addition, Econoday's Relative Performance Index is at 43, pointing to an economy performing appreciably stronger than expected.

Retail sales in July are expected to rise 0.4 percent following a 0.1 percent increase in June.

Retail sales measure the total receipts at stores that sell durable and nondurable goods. The headline data are reported in cash terms and disaggregated into eleven main subsectors. Aggregate volume figures are also provided.

With consumer spending a large part of the economy, market players continually monitor spending patterns. Data are available both for total retail sales and those excluding autos and for 16 different store specializations. Since autos account for over 25 percent of retail sales, the sector can have a pronounced impact on overall sales given their volatility. Retail sales are used to estimate the goods portion of personal consumer expenditures in the quarterly GDP accounts, accounting for about 50 percent of the total.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps apparel sales are showing exceptional weakness but electronics sales are soaring. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.