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Economic News

Canada: Retail Sales End Q2 on a Low Note, but Could Bounce Back in July

August 23, 2024
Florence Jean-Jacobs
Principal Economist

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. 

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.