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Canada: Retail Sales Eke Out Another Gain in June Finishing Second Quarter on a Weaker Note

Retail sales rose 0.1% month-on-month (m/m) in June, coming in a tad stronger than the flat reading reported in Statistics Canada’s advance estimate. May’s print was revised down to 0.1% m/m from 0.2% reported originally.

Adjusting for inflation, the volume of retail sales was 0.1% lower on the month.

Defying expectations, sales at motor vehicle and parts dealers accelerated, gaining 2.5% m/m on the back of strong demand for new cars and following an upwardly revised reading of 1.1% m/m in May (vs. 0.8% reported earlier). This category accounts for all of today’s headline growth.

Receipts at gasoline stations and fuel vendors were 0.3% higher on the month but bearing a small weight they had little impact on the headline number

Excluding sales at car dealerships and gas stations, core retail sales were down 0.9% in June, below the consensus estimate of a 0.3% m/m increase. The only two categories that reported gains were miscellaneous store retailers  (+1.1% m/m) and sales at furniture and home furnishings stores (+ 0.1% m/m).

The rest of the categories were in the red, with the deepest declines reported by electronics and appliance stores (-3.4% m/m) and building materials and garden equipment dealers (-1.4% m/m), general merchandise stores (-1.4% m/m), and food and beverage stores (-0.9% m/m)

E-commerce sales, which are not included in the headline tally, grew 1.1% m/m in June after an upwardly revise growth of 2.3% in May. We expect that July’s reading will be supported by generous incentives of Canada’s Amazon Prime days.

Statistics Canada’s advanced estimate points to a solid reading of 0.4% in July.

Key Implications

Following a soft reading in May, today’s marginal gains gets the second quarter’s to -0.1% annualized – a notable step down from a 2.6% pace in Q1. This puts personal consumption expenditures on track for 1% annualized growth in Q2. Looking ahead, spending might still regain its footing with the help of government’s grocery rebates. These were aimed at supporting lower-income households that typically have a higher propensity to consume. Like Stats Canada’s advance estimate, our internal data points to a rebound in monthly spending in July.

However, by demonstrating more resilience they’ll pay the price of higher cost of future borrowing (and spending). The cumulative effect of 475 basis points on interest rate hikes is only starting to have real impact on households’ budgets. As more mortgages roll over at higher rates, homeowners will divert more of their income towards debt servicing. This means that retail sales could be the next in line to roll over.

TD Bank Financial Group
TD Bank Financial Grouphttp://www.td.com/economics/
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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