Retail sales fell 0.5% month-on-month (m/m) in September, in-line with Statistics Canada’s advance estimate. Adjusting for the impact of inflation, the volume of sales was down just 0.1% on the month.
Statistics Canada’s advance estimate for October points to a 1.5% m/m gain.
Lower receipts at gasoline stations (-2.4%) weighed on the headline in September. The drop was entirely due to lower prices, which fell by 7.4% m/m. In volume terms gasoline sales were actually higher, with lower prices encouraging more driving. Sales of motor vehicle and parts were flat.
Core sales, which exclude autos and gasoline, declined by 0.4%, partially reversing a gain in the month prior. In real terms core sales were down 0.7% m/m.
- Sales at food and beverage stores declined by 1.3%, with an even larger drop in real terms (-2.2%). Sales also edged lower at health and personal care stores (-0.2%), and at stores selling sporting goods, hobby items, and books (-1.5%), following an outsized gain in the prior month.
- Performance was mixed in the housing-related categories. Sales were up 1.4% at furniture & home furnishings stores, increasing for the second consecutive month. However, receipts fell at building materials & garden equipment & supplies stores (-2.0%) and electronic & appliance stores (-0.6%), with the latter declining for the fifth consecutive month.
- Sales at clothing and accessories stores were up 1.7% on the month. General merchandize stores (+0.6%) and miscellaneous retailers (+0.6%) also saw higher sales.
- E-commerce sales were down 5.4% m/m and were just a hair lower (-0.1%) than they were a year ago.
Key Implications
Today’s release caps data for the third quarter. Looking at the quarterly numbers, spending at retail stores looks to have eased notably in Q3. In nominal terms sales were down 1.0% on the quarter, after advancing by 3.3% in Q1 and 2.8% in Q2. And, the weakness is not just due to lower gasoline prices, as the volume of sales also fell in Q3. Another culprit for weaker sales could be the shift in spending toward services, and away from goods sold at retail stores. There’s limited data to gauge consumer spending trends on services, however, one such category, spending on dining out in bars and restaurants, is showing that spending had plateaued at the end of summer.
Indeed, the most likely reason is that consumers are starting to tighten their purse string, under the weight of financial headwinds: high inflation, rapidly rising interest rates and shrinking wealth. Higher debt servicing costs are expected to hit household finances hard over the remainder of this year, and will remain a challenge next year as well, pointing to significantly weaker consumer spending in 2023.
