- Florence Jean-Jacobs
Principal Economist
Economic News
Canada: Retail Sales End Q2 on a Low Note, but Could Bounce Back in July
August 23, 2024
Highlights
Canadian retail sales declined by 0.3% m/m in June, in line with Statistics Canada’s flash estimate and the consensus of economic forecasters. The table below summarizes key data points.
In volume terms, retail sales edged up only slightly (+0.1%), but this was offset by a significant price drop (-0.4%) (graph 1).
Sales at motor vehicle and parts dealers led the decrease, with a hefty 2.1% contraction, with both new car (-2.9%) and used vehicle dealers (-0.6%) experiencing declines.
Sales at gas stations fell by 0.5% due to lower prices, as volumes surged.
Core retail sales, which exclude purchases at gas stations and motor vehicle and parts dealers, ticked up 0.4%. This was thanks in large part to food and beverage sales, up 1.2%. Gains at clothing stores and building equipment suppliers were moderated by lower sales at sporting goods and miscellaneous retailers.
Retail sales fell in seven provinces, with Ontario leading the decline. The province has now experienced six consecutive monthly declines in retail sales.
Overall in Q2, retail sales decreased in both nominal and volume terms, falling by 0.5% and 0.3%, respectively.
Statistics Canada’s flash estimate for July nominal retail sales points to a 0.6% monthly increase. This would entail significant growth in volumes, since prices (as measured by the seasonally adjusted goods Consumer Price Index) only rose by 0.1% in the month.
Implications
Since the beginning of the year, retail sales managed only one positive print, in April. The good news is that real retail sales did not falter in June as they did in May, and that July should see a return to positive growth. This would be a welcome evolution after two downbeat quarters to start 2024 (-0.5% q/q each) and an overall decline in volumes of 1.5% since the end of December 2023. We’re seeing some resilience in nominal sales excluding autos, which managed to tick up 0.2% in Q2. Still, real retail sales per capita are continuing to soften overall and in most categories, driven by record-high population growth (graph 2). And the pullback in auto spending in both Q1 (-1.9%) and Q2 (-2.4%) is consistent with cautious consumers prioritizing essentials.
After today’s release, we’re tracking annualized real GDP growth just shy of 2% for Q2, above the Bank of Canada’s (BoC) forecast of 1.5%, but with Q3 tracking well below the Bank’s projections (see our latest Economic and Financial Outlook External link.). We expect the BoC to continue cutting its overnight rate in each of the next three meetings this year, ending the year at 3.75%.
We’ll have to see if the federal government’s planned reduction on admissions of non-permanent residents pushes per capita consumption higher in the coming quarters and years. Lower inflation and borrowing costs should help ease the budget squeeze being felt by households. But with mortgage renewals just around the corner for many, the Canadian economy will still be facing headwinds in the medium term.
