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Canadian Retail Sales Starting to Stall as Higher Rates Bite
Randy Thanthong-Knight
Fri, July 21, 2023 at 9:36 a.m. GMT-4·2 min read

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(Bloomberg) -- Canadian consumers may be ready to wind down their spending, with retail sales data showing waning momentum at the end of the second quarter.

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Receipts for retailers were flat in June, according to an advance estimate from Statistics Canada released Friday. That followed a 0.2% increase a month earlier, missing the 0.5% gain expected by economists in a Bloomberg survey. In volume terms, retail sales rose 0.1% in May.

May’s receipts were led by increases at motor vehicle and parts dealers as well as food and beverage retailers. Excluding autos, retail sales were unchanged versus expectations of a 0.2% gain.

The report suggests Canadians were still spending on big-ticket items like cars, but strong momentum in April — when sales jumped by a downwardly revised 1% — appears to be losing steam toward the end of the second quarter.

“The Canadian consumer looks to be losing some wind beneath its wings in the face of still-elevated inflation,” Shelly Kaushik, an economist at Bank of Montreal, said in a report to investors. June’s estimate is “setting the stage for weaker momentum in the second half of the year,” she added.

The strength in household spending earlier this year prompted the Bank of Canada to resume raising interest rates, with increases to borrowing costs in June and July after a five-month pause. With goods consumption showing some signs of a slowdown, policymakers may have some room to step to the sidelines again.

A report earlier this week showed Canadian inflation back within the central bank’s control range for the first time since March 2021, but progress in cooling underlying price pressures has essentially stalled.

Spending on some rate-sensitive products like clothing contracted in May, but receipts for sporting goods and furniture stores were still up.

Governor Tiff Macklem and his officials expect growth in consumption spending to slow over the next year as demand for rate-sensitive goods and services weakens and more households renew their mortgage at higher rates. Their next policy decision is due Sept. 6, and economists are expecting the overnight rate be held steady at 5%.

“This data suggests that the economy is slowing in line with the Bank of Canada’s forecasts. As such, Canadian central bankers will view this as part of the process and will likely not see the need to raise rates further this year,” Tiago Figueiredo, a macro strategist with Desjardins Securities, said in a report to investors.

Regionally, sales increased in six provinces in May, led by higher sales in British Columbia and Alberta. In two biggest provinces Ontario and Quebec, sales were down for the second time in three months.

The statistics agency didn’t provide details on the June estimate, which was based on responses from 47.7% of companies surveyed.

(Updates with comments from economists from fifth paragraph.)

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