Canadian retail sales fell slightly in August, down 0.3% month-on-month. With the effect of prices removed, the performance was softer, as volumes fell 0.7%.
Despite solid sales growth among motor vehicle and parts dealers (+0.7%), a 2.5% drop in sales at food and beverage stores more than offset the gain. Across the remaining categories, Statistics Canada noted weakness at stores traditionally associated with housing: furniture and home furnishings (-2.4%), electronics/appliances (-0.2%), and building material and garden equipment stores (-1.9%).
Sales fell across most provinces, with the largest decline by value recorded in Quebec (-1.2%). However, Ontario recorded a modest gain (+0.3%), as did P.E.I., Nova Scotia, and New Brunswick.
Key Implications
Two months is hardly a trend, but after six straight months of growing retail sales volumes, Canadians appear to be taking a summer breather as volumes fell for a second month in August. As to whether this marks the beginning of a trend, that is likely to hinge on the evolution of housing markets – absent the pullback in housing-associated sales categories, sales would have been roughly flat on the month. After a summer adjustment period, Canadian housing markets have recovered somewhat, suggesting that the Canadian consumer may not be done just yet.
For the Bank of Canada, the link to housing in today’s data may result in a slight discounting, both for the reasons discussed above, and that the data pre-dates their September interest rate increase – indeed, there is still only limited data with which they can assess the full impact of the two hikes already implemented this year.
This Wednesday’s interest rate decision and Monetary Policy Report will be closely watched given recent economic developments. With the Bank of Canada in ‘intense data dependent mode’, the interpretation of recent softness in the data, as well as the impact of this week’s ‘B-20’ guidelines for mortgage underwriting will be crucial in assessing the likely path forward for interest rates.
