By Robb M. Stewart
Canadian retailers have faced a setback as sales declined in August, marking the first drop in five months. Furthermore, early indications suggest that the lackluster consumer spending continued into September.
The decline in retail sales adds to the mixed picture of an economy that has been slowing since the beginning of the year. Sales on a volume basis have declined for three consecutive months in August.
According to Statistics Canada, sales decreased by 0.1% from the previous month, amounting to a seasonally adjusted 66.08 billion Canadian dollars, corresponding to approximately $48.16 billion. The decline was less severe than the initial estimate of a 0.3% drop and followed an upwardly revised 0.4% increase in July.
When compared to the same period last year, retail sales in August were 1.6% higher.
Statistics Canada reports that early indications from companies suggest that retail sales remained unchanged in September compared to the previous month. However, it is important to note that this figure is based on the response of approximately 37% of companies surveyed and is subject to revision.
Economists anticipate that Canada’s economy will continue to remain sluggish in the third quarter of the year, following a slight contraction in the previous quarter. This slow growth can be attributed to persistently high inflation rates and more than a year of elevated interest rates, which continue to impact consumer demand. In terms of industry-level gross domestic product (GDP), July saw minimal change compared to the previous month, and early estimates indicate only a modest 0.1% growth in August. Notably, manufacturing sales experienced an increase during this period, primarily due to higher prices.
Overall, the decline in retail sales is a cause for concern and may reflect ongoing challenges within the Canadian economy.
The Bank of Canada to Release Economic Projections
The Bank of Canada is set to reveal its updated projections for the economy during an upcoming meeting where policymakers will decide on interest rates. Last month, the central bank maintained its policy rate at a 22-year high of 5%, following two consecutive quarter-point increases in June and July.
Consumer Sentiment Reflects Impact of Higher Rates
According to a recent consumer poll, higher interest rates are already starting to have an effect on major purchases. As a result, many households are not planning to finance their purchases through loans, and overall intentions to make major expenditures on goods and services in the next six months have decreased compared to the past six months. While Canadians still hold an optimistic view of the job market’s resilience, the rising cost of living continues to be a primary concern for consumers.
Retail Data for August Shows Mixed Performance
Retail data for August indicates that Canadians spent less at motor vehicle and parts dealers for the second consecutive month. However, this decline was partly offset by increased sales at gas stations and fuel vendors due to higher prices. Excluding sales from gasoline stations and motor vehicle and parts dealers, Canadian core retail sales declined by 0.3% from July, when core sales experienced significant growth. In addition, sales of food and beverages, as well as sporting goods, books, and miscellaneous items, were lower in the month of August.
Volume-Based Retail Sales Drop
On a volume basis after adjusting for price changes, retail sales fell by 0.7% in August compared to the previous month. This decline follows previous drops of 0.2% in both June and July.
Impact of Port Strike on Sales
The strike by port workers on Canada’s west coast also contributed to the weak sales performance in August. Approximately 12% of retailers reported being affected by the strike, according to data from the agency.