Retail sales rose 0.7% month-on-month (m/m) in August, partially reversing July’s large decline. Adjusting for the impact of inflation, the volume of sales was up 1.1% on the month.
Statistics Canada’s flash estimate for September points to a 0.5% m/m decline.
Receipts at gasoline stations were marginally lower in August, reflecting lower prices at the pump (-0.2%). However, lower prices encouraged consumers to hit the road again, and demand for gasoline strengthened noticeably, with volume of sales up 7%. Sales of motor vehicle and parts also edged higher (+0.6% m/m).
Core sales, which exclude autos and gasoline, rose 0.9% – the largest increase since March. In real terms core sales were up 0.4% m/m.
- Higher sales at food and beverage stores led the increase (+2.4%), but much of the gain was due to higher prices, with the volume of sales up by 1.3% on the month. Sales at sporting goods, hobby and book stores rose 5.0% on the month. The release noted that this strength is due to many team sporting leagues resuming full capacity activities over summer.
- Housing-related categories also fared better in August despite the cooling housing market. Sales were up 1.5% at furniture & home furnishings store, and were also higher at building materials & garden equipment & supplies stores (+0.6%). Sales at electronics and appliance stores edged lower (-0.2%), but this was the smallest decline in the last four months.
- Sales at clothing and accessories stores were flat on the month (-0.1%) due to discounts as sales volumes were actually up. General merchandize stores (-0.7%) and miscellaneous retailers (-1.4%) saw sales decline.
- E-commerce sales were up by a whopping 5.7% and were up 8.1% from a year ago.
Key Implications
Following a large drop in July, retail sales improved in August. Lower gasoline prices put consumers in better spirits and back behind the wheels to savor those final days of summer. In volume terms gasoline sales rose for the first time since April.
While encouraging, today’s increase only partially reverses the steep drop in retail sales in July, and the preliminary forecast calls for sales to weaken in September. This suggests that the overall trend in spending remains one of deceleration.
Indeed, household finances have taken a hit from the triple whammy of high inflation, rapidly rising interest rates and shrinking wealth. Thus it’s no surprise that consumers are becoming more cautious, and have been scaling back on discretionary items, such as dining out and entertainment, with monthly gains in sales at bars and restaurants fizzing out over the summer months. Our high-frequency data on TD debit and credit card spending reaffirms that this weakening trend remained in place in August and September. All in all, consumers will have to make some tough choices in the months ahead, all of which point to significantly weaker consumer spending in 2023.
