Highlights:
- Retail sales dropped 0.1% in the month with the volumes measure down a greater 0.3%
- The nominal decline reflected gasoline station sales dropping 2.0% moderated by motor vehicle sales rising 0.8%. Excluding these two components, sales dropped 0.1% following a 0.5% gain in July.
- E-commerce sales rose 13.9% compared to overall retail sales gain of 3.7%.
Our Take:
The nominal value of August retail sales declined 0.1% with the volumes measure down 0.3% following a 0.2% drop in July. These volumes declines continue to unwind an outsized 2.1% monthly surge in May. However, it is still the case that the average monthly increase in volumes to date this year is one-half the 0.3% average gain achieved in 2017. This difference has contributed to the year-over-year rate moderating to around 1% from the almost 6% gain recorded through 2017. This slowing in retail sales volumes is not necessarily unwanted. With the economy operating at capacity, monetary policy is being tightened to slow overall GDP growth closer to the economy’s long-run potential rate of around 1.8%. The Bank of Canada has long wanted to see a shift away from robust consumer spending, which has contributed to rising household debt, and towards greater expenditure in investment and exports.
Today’s decline in retail sales volumes follows indications earlier this week that the volume of manufacturing sales dropped 0.3% in August. However we are assuming offsetting gains in mining output along with continued trend increases in most other service-producing sectors that will result in overall August GDP rising 0.1% in the month. This is consistent with Q3 GDP growth likely rising 2.3%. With this rate slightly above potential, and being achieved despite a temporary shutdown of a key oil sands production facility, it is expected to keep the Bank of Canada tightening. Our forecast assumes a 25 basis point hike next Wednesday will be followed by two further similar-sized hikes over the first half of next year.
