CA: Retail Sales

September 23, 2016 07:30 CDT

Consensus Actual Previous Revised
Month over Month 0.2% -0.1% -0.1% 0.0%
Year over Year 2.3% 2.7% 2.8%

Retail sales were surprisingly soft in July. Having shown no growth since April, purchases dipped a further 0.1 percent on the month to reduce annual growth from 2.8 percent to 2.3 percent, its weakest posting since last December.

However, the headline decline was biased down by falling prices and volumes had a better time of it, increasing 0.3 percent versus June.

The overall monthly nominal fall reflected decreases in five of the eleven reporting subsectors. Amongst these, gasoline (3.0 percent) had a sizeable impact as did furniture and home furnishings (1.4 percent). Motor vehicles and parts (minus 0.2 percent) were down for the fourth time in five months. Partial offsets were provided by clothing and accessories (1.6 percent), building material and garden equipment and supplies (1.5 percent) and miscellaneous stores (1.6 percent).

July sales should have been boosted by the launch of the new Canada Child Benefit (CCB) which is expected to cost the government around C$22.4 billion over the next five years. This makes the latest figures all the more disappointing. Indeed, how household demand responds to the CCB over coming months will be important to BoC policy as part of the central bank's rationale for expecting a pick-up in economic growth is linked to the fiscal boost provide by the programme. As it is, the small gain in volumes suggest there is some life in the consumer sector but, with August inflation very weak (see today's calendar entry), the risks of fresh BoC easing is growing.

Retail sales measure the total receipts at stores that sell durable and nondurable goods. The headline data are reported in cash terms and disaggregated into eleven main subsectors. Aggregate volume figures are also provided.

With consumer spending a large part of the economy, market players continually monitor spending patterns. Data are available both for total retail sales and those excluding autos and for 16 different store specializations. Since autos account for over 25 percent of retail sales, the sector can have a pronounced impact on overall sales given their volatility. Retail sales are used to estimate the goods portion of personal consumer expenditures in the quarterly GDP accounts, accounting for about 50 percent of the total.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps apparel sales are showing exceptional weakness but electronics sales are soaring. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.