• Nominal retail sales rose 0.4% in July, but removing the impact of prices, the volume of sales edged down by 0.2%.
  • Higher auto sales and stronger spending at food retailers led the nominal increase.
  • E-commerce sales (not all of which are included in the retail sales totals) were up 47% year-over-year in July though their share of retail trade is just 2.3%.

Our Take:

Today’s lukewarm retail sales report showed a modest, price-driven increase in retail sales with volumes edging slightly lower. The pause in July is hardly concerning given the robust gains in recent months that drove year-over-year volumes growth to a decade-high in June. Strength in the retail sector is consistent with impressive job gains over the last year, although an uptick in consumer credit which is now growing at its fastest pace since 2011 was also a factor. Canada’s recent pace of consumer spending growth—annualized gains of nearly 5% over the first half of this year—looks unsustainable, and with GDP growth now better balanced by other areas like business investment, we think further gradual removal of monetary policy accommodation is in order. We expect the Bank of Canada will raise interest rates once more by the end of the year following consecutive moves in July and September.

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Today’s retail sales report follows yesterday’s solid increase in wholesale trade and a more mixed set of manufacturing data on Monday that showed a narrowly-based decline in shipment volumes. On balance, we think this week’s data point to a more modest 0.1% increase in July GDP following solid gains of 0.3% and 0.6% in the prior two months. Even with a slower start to the quarter, we continue to look for an above-trend 2.5% annualized increase in Q3 GDP.


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