- Florence Jean-Jacobs
Principal Economist
Economic News
Canada: Retail Sales Surprise to the Upside in July
September 20, 2024
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.).