Canada retail sales drop 0.3% in sign of consumer slowdown
CANADIAN consumers appear to be quickly rolling back their spending as the Bank of Canada’s higher interest rates start to bite into more household budgets.
Receipts for retailers dropped 0.3 per cent in August, the first decline since March, according to an advance estimate from Statistics Canada released on Friday (Sep 22). That followed a 0.3 per cent increase a month earlier, which missed the median estimate of 0.4 per cent in a Bloomberg survey.
Sales rose in seven of the nine subsectors in July, and were led by increases at food and beverage retailers. Motor vehicle and parts dealers saw the largest decrease that month, and fell for the first time in four months. Excluding autos, retail sales rose 1 per cent, double the expectations.
In volume terms, retail sales edged down 0.2 per cent in July.
The report suggests Canadians are tightening their purse strings as more households face mortgage payment renewals and high fuel prices. The Bank of Canada held borrowing costs steady on Sep 6, saying recent evidence showed higher rates are working to slow the economy and consumption.
“Given that population growth has accelerated in recent months, retail sales volumes are doing even worse in per capita terms as higher interest rates take a heavy toll,” Stephen Brown, an economist at Capital Economics, said in a report to investors. “Those new arrivals should be boosting aggregate spending, leaving little doubt that higher interest rates continue to weigh heavily on consumers’ spending power.” Canada has been adding about 300,000 people per quarter.
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Strength in household spending earlier this year, partly due to a record population growth and immigration, prompted policymakers to resume raising interest rates in June and July after a five-month pause. The central bank’s next rate decision is due on Oct 25, and most economists in a Bloomberg survey expect the bank to hold again.
“The decline in August coincided with the first month after the Bank of Canada had moved the overnight rate up to 5 per cent,” Tiago Figueiredo, a macro strategist at Desjardins Securities, said in a report to investors. “The flash estimate could represent some of the first signs that the central bank’s latest hikes are taking a significant bite out of consumer spending.”
Regionally, sales rose in five provinces in July, led by higher sales in Quebec and British Columbia. Ontario saw the largest provincial decrease, driven by lower sales at motor vehicle and parts dealers.
About 17 per cent of Canadian retailers said the strike at British Columbia ports in July affected their business activities, the statistics agency said. On an unadjusted basis, the largest estimated impact on sales in US dollar terms were at motor vehicle and parts dealers.
The statistics agency didn’t provide details on the August estimate, which was based on responses from 49.2 per cent of companies surveyed. BLOOMBERG
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