Canada: Retail Sales Rose in September, but Consumers Are Clearly Feeling the Pinch

Auto sales led a solid gain in September, while retail purchases were otherwise weak, with growth contracting in five of nine subsectors in the month. Indeed, core retail sales, which excludes sales at gas stations and auto dealers, were down 0.3% in September. The auto sales increase followed a noticeable decline in the prior month, and continues the trend of month-over-month volatility seen in recent years as supply chains have struggled to respond to demand.

We’re tracking real GDP growth of about 0.4% (q/q annualized) in the third quarter of 2023—half the pace projected by the Bank of Canada in its most recent forecast. Accordingly, we still expect the Bank to hold rates steady at its next meeting, and that the next move will be a cut towards the middle of 2024.

We’ve noted several times recently that economic growth is not keeping up with population gains, and that’s true of retail sales as well. Although September’s increase provided some support for per-capita retail purchases, this indicator is still clearly trending downward (graph 2). That suggests weak household consumption per person in the third quarter, and more moderate consumer activity than implied by the headline growth rate.

In all, despite the headline rise in September, it’s clear that consumers are feeling the pinch from high interest rates, still-elevated inflation, and a cooling labour market. We expect growth to slow more meaningfully in the coming months as Canadians increasingly feel the full impacts of the central bank’s aggressive tightening campaign.