- Canadian retail sales edged up 0.4% month-on-month in August, the smallest monthly increase since the onset of the recovery. This brought sales 3.5% above their year-ago level. The August print undershot Statistics Canada’s preliminary forecast of 1.1%. Looking ahead, Statistics Canada’s flash estimate points to a flat reading in September.
- The increase in sales was entirely a volumes story. Netting out prices, retail sales were up a slightly stronger 0.5% on the month.
- Flat sales of cars and parts (-0.1%) – the largest category of retail spending – was the main culprit behind the soft monthly headline number. By contrast, spending on gas advanced 1.2% on the month, but remains 13.4% below year-ago level.
- Core sales, which exclude those two categories, rose by 0.4% on the month partially reversing the drop in the previous month. The largest gain was seen in building materials & garden equipment (+4.5%), however sales also rose at food and beverage stores (+0.8%) and at miscellaneous retailers (+0.7%) .
- By contrast, sales of sporting goods, hobby and book stores (-8.8%), health & personal care stores (-0.4%) and at general merchandise stores (-0.7%) continued to ease for the second consecutive month. That being said, sales in these categories still remain considerably higher than a year ago. Sales at clothing stores were flat on the month, and remain 12% below their year-ago level.
- Online sales declined again (-2.0%) as shoppers continued to return to the brick-and-mortar stores. Nonetheless, sales in this category were still up by an eye-catching 60.6% on a year-over-year basis.
- Sales rose in seven provinces. The strongest gains were seen in Atlantic provinces, with sales increasing by 4.4% in Nova Scotia and 6.9% in PEI. Relatively strong auto sales lifted activity in Quebec (+1.6%). Gains were more muted in New Brunswick (+0.6%) and British Columbia (+0.5%). By contrast, in Manitoba and Alberta sales pulled back 1.6% a piece, and were 0.9% lower in Newfoundland & Labrador. Ontario posted a flat performance in August (+0.1%).
Key Implications
- Retail sales growth continued to slow in August, with a flat performance expected in September. As sales are well-above their year-ago level in most categories of spending, this moderation is to be expected as the economy enters a slower recuperation phase. Rising COVID cases and renewed restrictions on some activities may also weigh on sales in the coming months.
- Renewed COVID restrictions also pose a headwind to the labour market recovery. So far, as we note in our latest report, the Canadian labour market has outperformed its U.S. counterpart across most segments thanks in part to better control over the virus and more supportive fiscal policy. If provinces continue to tighten restrictions on the economy, labour market improvements could stall, resulting in weaker consumer spending activity. Controlling the spread of the virus will be crucial for the economic recovery.
