Canadian retail sales rose 0.6 per cent in July, an indication that consumer spending is recovering as Canada’s economy returns to positive growth.

Statistics Canada reported Tuesday that Canadians spent $40.3 billion in the month, led by high sales at gas stations. The higher gasoline spending reflects both higher prices for gas and fuller gas tanks, as Canadians travelled more frequently during the summer.

Even stripping out autos and gas spending, underlying sales were up a solid 0.6 per cent, reversing a decline in June and marking a sharp increase from the previous year.

Consumers were headed back to the mall, with spending up on clothing, sporting goods, furniture and health and personal products. In Alberta, where floods damaged thousands of homes in June, there was a 6.2 per cent jump in sales of building materials stores as homeowners repaired and rebuilt.

Bank of Montreal economist Robert Kavcic said the big story in July was not the post-flood spending spike in Alberta but rather a rebound in sales in Central Canada, with strong increases in Ontario (up 1.5 per cent) and Quebec (up 1.3 per cent), as well as Newfoundland and Labrador (up 1.3 per cent).

Economy appears to have bounced back

“With all of the key monthly data now in hand, it looks like the Canadian economy did, indeed, bounce back in July," he said in an analysis.

The increase in July follows a drop in June in both consumer spending and GDP.

The strong gain in Quebec may be because of the end of the construction strike, with an increase in sales of building materials and higher general spending as workers begin to earn again.

RBC Capital Markets economist Nathan Janzen predicts consumer sales will continue strong for the third quarter.

The volume of sales in July was an annualized 0.7 per cent above the average in the second quarter, he said in his analysis.

"Assuming continued growth in August and September, this remains consistent with our forecast that consumer spending will grow at a respectable rate of close to two per cent in [the third quarter]," he said in a note to investors.

Combined with strong wholesale and manufacturing sales, an expected rebound in construction output, and increased mining and transportation activity the data points to a  solid 0.7 per cent gain in GDP in July, he said.