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Economic News

Canada: Retail Sales Surprise to the Upside in July

September 20, 2024
Florence Jean-Jacobs
Principal Economist

Highlights

  • Retail sales kicked off the third quarter with a solid 0.9% increase in July, the highest monthly growth this year and above Statistics Canada’s flash estimate (0.6%) and the consensus of economic forecasters (0.4%). The table below summarizes key data points.
  • Retail sales volumes were also up, rising 1.0% m/m, as prices inched down 0.1% (graph).
  • After two consecutive quarterly declines, sales at motor vehicle and parts dealers rose by a hefty 2.2% m/m. Although this erased the previous monthly decline, auto sales are still 3.6% below their December 2023 level.
  • Sales at gasoline stations moderated the overall advance. In a month marked by unexpected weather‑related events (e.g. heavy rainfalls in Toronto, wildfires and evacuation in Jasper), volumes at gas stations declined sharply and nominal sales edged down 0.6% in July.
  • Core sales, which exclude motor vehicle and fuel vendors, grew by 0.6%, thanks to grocery stores and general merchandise retailers, while spending at building material and garden equipment suppliers fell. 
  • Retail sales were up in eight provinces. Ontario registered a seventh consecutive monthly decline, with a drop of 1.2% in the Toronto CMA
  • Statistics Canada’s flash estimate for August nominal retail sales points to a 0.5% monthly increase. This would entail an equivalent growth in volumes, since prices (as measured by the seasonally adjusted goods Consumer Price Index) were flat in the month. 

Implications

Today’s release is a pleasant surprise for the Canadian economy, after two downbeat quarters for retail sales. The gradual pickup in core sales is encouraging, and so is the August 0.5% flash.

Things are looking up for the third quarter, but some caution is in order. Five out of 7 months this year posted monthly declines in retail sales, and year‑to‑date growth is admittedly lacklustre (‑0.8% nominal, +0.3% in volumes). It remains to be seen if strength in auto sales will continue, as their progress have been uneven month‑to‑month and the July rebound follows a widespread software outage at dealerships in June. In all, auto sales are 3.6% below their December 2023 level. Moreover, other interest‑rate sensitive sectors also have continued posting soft sales.

Looking forward, we continue to expect relatively downbeat consumer spending in the next few months. Household finances are still squeezed, and employment growth remains weak. Consumer savings are rising, as many prepare for an increase in mortgage payments at renewal. And even if inflation is easing, prices remain elevated, at 19% above their end‑of‑2019 level. Although declining borrowing rates should help consumers, planned reductions in immigration will likely be offsetting for overall retail spending.

After today’s release, we’re tracking annualized real GDP growth of around 1% for Q3, well below the latest BoC projections (2.8%). We expect the BoC to continue its interest‑rate cutting cycle, with a likely 50 basis‑point cut at its October meeting (see our latest Economic and Financial Outlook External link.).

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.