Canada: Real Retail Sales Contracted in Q2
- Canadian retail sales increased by 0.1% in June, stronger than the consensus forecast. However, volumes fell by 0.2%. Core retail sales – which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers – fell by 0.9%, meaning that sales at auto dealers brought up the headline. Table 1 summarizes key data points.
- The modest advance in June resulted in a flat second quarter for nominal retail sales. In volume terms, retail sales decreased by 0.8% in Q2.
- Statistics Canada's flash estimate is pointing to a 0.4% increase in July.
The better-than-expected June print has modest positive implications for the outlook. While the June data raised our Q2 2023 real GDP growth tracking slightly, at 1.4% (q/q annualized), it remains just below the Bank of Canada’s forecast. Meanwhile, the rebound indicated by the flash estimate for July has pushed up our Q3 tracking to around 1% annualized, although data for the quarter is only starting to trickle in.
That said, the big picture is that of slowing retail sales momentum, as evidenced by declines in most of the subsectors and in most provinces. When accounting for strong demographic growth, the weakness in consumer spending is even more apparent. This should give the Bank of Canada (BoC) some reassurance that the tightening it has done so far is working as intended. With more of those effects lying ahead, the BoC looks likely to hold its policy rate at 5% at its meeting of September 6.
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