Canada Retail Sales Climb 0.9% in July, Seen Up Again in August — 2nd Update

By Robb M. Stewart

OTTAWA--A pickup in spending over the summer suggests Canadian retailers saw a rebound in sales this quarter that coincides with easing inflation and the start of a rate-cutting cycle by the central bank, though a sustained lift in consumption is likely to wait for borrowing costs to fall further.

An advance estimate of retail receipts indicates sales increased 0.5% last month, Statistics Canada said Friday.

It comes after sales in July climbed 0.9% from the month before to a seasonally adjusted 66.38 billion Canadian dollars, the equivalent of about US$48.95 billion. That was strongest advance in 10 months and topped the data agency's prior projection for a 0.6% rise in sales after declines the previous two months.

Compared with a year earlier, retail sales in July also were 0.9% higher.

Statistics Canada offered no details with the estimate for August, which was based on the responses of just over half of retailers surveyed and will be revised. The jump in July was driven by a recovery in car sales, which was expected after automotive trade the month before was disrupted by a cyberattack that affected dealerships, though spending also increased more broadly, including on clothing, groceries and health and personal care.

"It's rare to see a positive surprise from Canadian consumers these days, but the July retail sales report delivered," said Shelly Kaushik, an economist at Bank of Montreal, who nevertheless expects consumers will need to see more rate cuts filter through the economy before there is a more meaningful recovery.

Increased sales in July and August, and the prospect of sales volumes in September being buoyed by a sharp drop in gasoline prices, paints a positive picture for the third quarter after retailers saw sales fall in the first two quarters of 2024.

In volume terms, retail sales in July were up a solid 1.0%, the strongest pace since early last year. That builds on growth in sales volumes for wholesale trade and factory sales for the month, and points to upside to Statistics Canada's earlier flash estimate for July industry-level gross domestic product to be flat for a second month running.

Strengthening sales volumes will be welcome news to the Bank of Canada, which has been concerned about downside risks to the economy, Olivia Cross, North America analyst at research firm Capital Economics said. There is a stronger change that Canadian consumption on a per capita basis picks up this quarter after contracting 2.2% annualized in the second quarter, she said.

The Bank of Canada early this month cut its benchmark interest rate for a third time in as many policy meetings as inflation continues to ease and unemployment edges higher. Economists widely expect another rate cut at the next central-bank meeting in October after annual inflation cooled to the Bank of Canada's 2% target in August.

Central bank officials have at recent meetings given increased weight to the risk of inflation falling too sharply if the economy doesn't pick up. Accounting for immigration-driven population growth, GDP on a per-capita basis has been down in seven of the past eight quarters.

Carrie Freestone, an economist at Royal Bank of Canada, expects consumption to remain soft in the near term relative to the country's population growth. Despite recent cuts in interest rates, stretched homeowners continue to wait for rates to fall further and many borrowers who had locked in ultra-low fixed-rate mortgages still face higher debt payments when mortgages are renewed this year and next, she said.

Anonymized debit- and credit-card data from Royal Bank suggest Canadians' spending slowed again in August, with travel and hospitality demand fading and home and renovation-related spending remaining weak.

Katherine Judge, senior economist at CIBC Capital Markets, estimates retail sales volumes are on track for an impressive about 4% growth annualized this quarter, helped by the rebound in autos. Though with the unemployment rate more than a percentage point higher than a year ago it is unlikely to be sustained, particularly with more mortgages set to be renewed at higher rates, she said. She continues to expect the Bank of Canada will need to cut rates at the two remaining meetings this year and into 2025 to prevent a broader slowdown in the economy.

In July, sales were up in seven of nine retail segments tracked by the data agency, helped by sales of new cars and despite a fall in receipts at gas stations and fuel vendors.

Core retail sales, which excludes car and auto-parts dealers and gas stations, were up 0.6% from June, a second consecutive monthly increase.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

September 20, 2024 11:23 ET (15:23 GMT)

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