| Consensus | Actual | Previous | |
|---|---|---|---|
| Month over Month | 0.3% | -0.1% | 0.3% |
| Year over Year | 1.6% | 2.0% |
Highlights
Retail sales were weaker than anticipated in August, as they unexpectedly contracted 0.1 percent, a decline that was even more pronounced in volumes, which fell 0.7 percent.
The preliminary estimate for September points to flat sales. In September, consumer prices contracted 0.1 percent, bringing down the year-over-year inflation rate to 3.8 percent from 4.0 percent in August.
With lower sales in six of nine subsectors and six of 10 provinces in August, and flat sales expected in September, today's report is bringing evidence to the Bank of Canada that its tightening policy is in fact cooling demand. That being said, it is worth pointing out that the port strike in British Columbia affected 12 percent of Canadian retailers, meaning some weakness might come from the supply side. Still, Econoday's Relative Performance Index, at 15, currently points to limited tightening risk.
A 0.9 percent drop in motor vehicles and parts played a large role in August sales performance. Excluding this sector, sales edged up 0.1 percent from July. By contrast, a 2.8 percent increase in gasoline and fuel boosted sales on the month. The gain in gas and fuel was entirely price related, as sales in this category fell 2.9 percent in volume. When excluding the latter sector and motor vehicles and parts, nominal core sales decreased 0.3 percent, led by food and beverages, down 1.2 percent, and sporting goods, hobby, musical instrument, book and miscellaneous, down 1.1 percent. Health and personal care as well as general merchandise recorded higher sales on the month.
The BoC's third quarter Canadian survey of consumer expectations released earlier this week pointed out the growing cost of living as the most pressing concern for consumers. It added that high inflation and rising interest rates were leading more households to reduce their spending than in the previous quarter due to their financial situation. More importantly,"many consumers believe the impacts of higher interest rates on their household spending are far from done," with impacts likely to be felt on major purchases. Instead, consumers are more likely to spend on discretionary items such as vacation and concerts that are not financed with loans. Consumers also point to signs of a cooling labor market as they spend more time looking for a new job than in previous quarters.
Still, the economy added 63,800 jobs in September, when the unemployment rate remained at 5.5 percent and year-over-year wage growth picked up to 5.0 percent from 4.9 percent.
The preliminary estimate for September points to flat sales. In September, consumer prices contracted 0.1 percent, bringing down the year-over-year inflation rate to 3.8 percent from 4.0 percent in August.
With lower sales in six of nine subsectors and six of 10 provinces in August, and flat sales expected in September, today's report is bringing evidence to the Bank of Canada that its tightening policy is in fact cooling demand. That being said, it is worth pointing out that the port strike in British Columbia affected 12 percent of Canadian retailers, meaning some weakness might come from the supply side. Still, Econoday's Relative Performance Index, at 15, currently points to limited tightening risk.
A 0.9 percent drop in motor vehicles and parts played a large role in August sales performance. Excluding this sector, sales edged up 0.1 percent from July. By contrast, a 2.8 percent increase in gasoline and fuel boosted sales on the month. The gain in gas and fuel was entirely price related, as sales in this category fell 2.9 percent in volume. When excluding the latter sector and motor vehicles and parts, nominal core sales decreased 0.3 percent, led by food and beverages, down 1.2 percent, and sporting goods, hobby, musical instrument, book and miscellaneous, down 1.1 percent. Health and personal care as well as general merchandise recorded higher sales on the month.
The BoC's third quarter Canadian survey of consumer expectations released earlier this week pointed out the growing cost of living as the most pressing concern for consumers. It added that high inflation and rising interest rates were leading more households to reduce their spending than in the previous quarter due to their financial situation. More importantly,"many consumers believe the impacts of higher interest rates on their household spending are far from done," with impacts likely to be felt on major purchases. Instead, consumers are more likely to spend on discretionary items such as vacation and concerts that are not financed with loans. Consumers also point to signs of a cooling labor market as they spend more time looking for a new job than in previous quarters.
Still, the economy added 63,800 jobs in September, when the unemployment rate remained at 5.5 percent and year-over-year wage growth picked up to 5.0 percent from 4.9 percent.
Market Consensus Before Announcement
Retail sales in August are expected to rise 0.3 percent to match July's 0.3 percent increase that saw prices rise but volumes drop.
Definition
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.
Description
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.
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.
