• Canadian retail sales were almost unchanged (m/m) in June, following a 0.2% drop in May (previously reported as 0.1%). The release came above consensus expectations for a 0.3% decline.
  • After stripping out price movements, the picture was better, with volumes up a decent 0.4%.
  • June saw relatively broad based increases (7 of the 11 major categories). Indeed, retail sales excluding the volatile autos and gasoline station categories were up 1.7% on the month. Strong increases were seen in building material and gardening equipment stores (+6%), clothing and clothing accessories stores (+4.2%), sporting goods, hobby, book, and music stores (+3.8%), and general merchandise stores (+3%). Providing the offset were lower sales at motor vehicle and parts dealers (-2.5%) and gasoline stations (-3.4%).
  • Regionally, sales increased in 6 of the 10 provinces. Nominal sales growth was positive in Manitoba (+1.3%), Ontario (+0.1%), and all the Atlantic provinces. Saskatchewan saw the largest drop (-2.7%), whereas Quebec, Alberta, and British Columbia all saw sales fall 0.4% in June.

Key Implications

  • June’s retail sales release was a positive surprise which adds some upside to our 3% real GDP tracking for the second quarter and provides a bit of momentum heading into the third quarter. Of course, it is important to note that driving some of the gains were transitory factors – most notably the Toronto Raptors games in the NBA finals (per Statistics Canada) which supported increased sales at clothing and sporting stores.
  • Looking ahead, we expect that household debt levels will continue to put a damper on retail sales and consumer spending growth. That said, the recent surges in wage growth, stabilizing housing markets, and declining borrowing rates will serve to ease some of the existing headwinds to the sector.
  • Against this backdrop, the Bank of Canada still faces a tough road ahead, balancing otherwise healthy domestic indicators against elevated external risks.

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