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TORONTO, ONTARIO--(Marketwire - Oct. 20, 2011) - Santa is still coming to town this year for Canada's retailers, but with a lighter sack than last year, according to a new report from BMO Capital Markets Economics.

"While concerns about a global recession, cross-border shopping and potentially tapped-out consumers may be warranted, Canada's retailers should still experience an increase in sales this holiday season," said Sal Guatieri, Senior Economist, BMO Capital Markets. "Low interest rates, relatively low unemployment, and steadier gasoline and food costs will keep the Grinch away. While household debt remains high, not all households are overstretched."

The report predicts that retail sales receipts, excluding auto and gasoline sales, should increase about 2.5 per cent year-over-year in November/December, "Although slower than last holiday season's increase of 3.1 per cent, that's better than the downturn-affected years of 2009 and 2008," noted Mr. Guatieri. "We expect sellers of necessities – such as drugstores and auto mechanics – and services to outperform."

The report states that low interest rates should keep Canada's economy moving forward – albeit slowly – and the jobless rate below long-run norms. "As global recession fears abate, consumer confidence will improve. Meantime, expected steadier gasoline prices and food costs should reduce inflation in coming months, lifting real wages," said Mr. Guatieri.

The report also notes that same-day car travel to the U.S. increased 16 per cent year-over-year in the first eight months of the year, the fastest pace since the early 1990s when the loonie was also punching above its weight. "Some slowing in cross-border sales is likely if the Canadian dollar weakens moderately, as expected, in coming months due to the ongoing European debt crisis," stated Mr. Guatieri. "However, it could take a larger move to below 90 U.S. cents to mask the lure of lower-priced American goods."

"Despite a great deal of uncertainty in the global economy, Canadian retailers are cautiously optimistic as we approach this critical sales period," said Cathy Pin, Vice-President, Commercial Banking, BMO Bank of Montreal. "Retailers in this country have a remarkable ability to adapt and have shown their resiliency. Over the past year many have capitalized on the appreciation of the Canadian dollar, and taken advantage of opportunities to diversify their business and suppliers, and have broadened their customer base."

Regionally, Alberta's retailers should have a merrier season than their counterparts. "Consumers in that province have enjoyed the strongest job growth of late," noted Mr. Guatieri.

The full report can be found at www.bmocm.com/economics.