Canadian retail spending unexpectedly dipped 0.1% month-on-month in August, disappointing calls for a 0.3% gain. What’s more, spending growth was revised down slightly in July to show a 0.2% gain (previous: 0.3%). Stripping out price effects, the story was even worse, with volumes down 0.3% in August.
Sales at motor vehicles and parts dealers advanced 0.8% during the month, making the largest positive contribution to overall sales. Excluding this category, spending was down 0.4%, weighed on heavily by sales at gasoline stations (-2.0%). Sales were also lower at furniture and home furnishing stores (-1.4%), electronics and appliance stores (-1.4%), building material and garden equipment supplies stores (-1.1%), clothing stores (-1.1%), and for miscellaneous retailers (-2.3%). Conversely, a relatively strong gain was reported for health and personal care stores (+1.6%).
Regionally, the weakness was relatively narrow, with sales lower in 4 of 10 provinces. Spending was sharply lower in Saskatchewan (-2.7%) while also falling in Quebec (-0.7%), Alberta, and British Columbia (-0.1% in both provinces).
Key Implications
Rising borrowing costs appear to be weighing on household spending, with retail spending gearing down in the third quarter. With August’s soft print, volumes are 0.5% lower so far in Q3 compared to their Q2 average. This puts some downside risk to our (already modest) forecast for consumer spending to grow at a 1.8% (annualized) pace in the third quarter.
One of the main concerns held by the Bank of Canada was how highly-indebted consumers would respond as interest rates move higher. On this score, August’s soft spending report may suggest that given these challenges, the number of rate hikes required to keep the economy on an even keel may be smaller than it has been in the past.
