Retail sales rose 0.3% month-on-month (m/m) in July, coming in a tad weaker than 0.4% m/m reported in Statistics Canada’s advance estimate. June’s print remained unchanged at 0.1% m/m.
Adjusting for inflation, the volume of retail sales was 0.2% lower on the month.
Sales at motor vehicle and parts dealers fell by 1.6% m/m – the first decline in four months. But this weakness comes on the back of a 1.4% gain on average over the past three months.
Sales growth at gasoline stations and fuel vendors were 0.7% lower relative to June. In volumes terms, receipts were down 1.0% m/m in July. We expect to see a reversal in August as gas prices accelerated recently.
Excluding sales at car dealerships and gas stations, core retail sales rebounded strongly in July with a reading of 1.3% m/m that exceeded the consensus estimate of 0.5% m/m. However, the three month average remained at 0.1% in July
Strength in core sales was broad-based and led by food and beverage stores (+1.3% m/m) and general merchandise retailers (+1.8% m/m).
No core category reported losses in July, but Statistics Canada reports that approximately 17% of Canadian retailers were affected by the strike at the ports in British Columbia.
E-commerce sales gained a whopping 2.4% m/m in July on the back of an upwardly revised gain of 3.4% m/m in June (from 1.1% m/m reported earlier).
The advanced estimate for the month of August points to a decline of 0.3% m/m. This is in line with our own estimate of consumer activity based on TD debit/credit card spending.
Key Implications
Retail trade entered the third quarter on a decent footing with solid gains in core categories – revealing a reacceleration in spending momentum from an essentially flat second quarter. But that pick up is modest by historical standards, with real consumer spending tracking 1.4% quarter-on-quarter (annualized) for the third quarter, as outlined in our recent Quarterly Economic Forecast.
Monetary policy’s long and variable lags are leaving a permanent mark on the Canadian consumer. By the Bank of Canada’s estimates, roughly 50% of mortgages that were initiated before they started raising interest rates last year will face higher rates by the end of this year. Meanwhile, families who rely on a more interest-rate sensitive consumer credit have already fully experienced the bitterness of higher rate medicine, and retail sales in real terms are softening. We think that weaker demand will translate into cooler inflation in the coming months, enabling the BoC to will remain on hold for the rest of the year.
