Canadian Retail Sales Drop as Inflation, Rising Rates Weigh on Consumers

Retail sales fell 2.5% to $61.3 billion in July, the first drop in seven months as sales at gasoline stations as well as clothing and clothing accessories stores decreased. Building material and garden equipment and supplies were down 0.6% from June, but still up 13.5% from the same period a year ago. General merchandise stores were down 0.2% from June, but up 13.4% compared to a year ago.

The drop was deeper than the 2.0% drop that the agency had predicted in its early estimate for the month, however its initial estimate for August pointed to a gain of 0.4% for the month.

CIBC economist Karyne Charbonneau said retail sales had been more resilient than expected in the past couple of months given high inflation, rising interest rates and a shift to service consumption. “The weaker-than-expected July data finally provides some evidence that the expected shift away from goods consumption and the impact of higher rates are starting to materialize more meaningfully,” Charbonneau wrote in a report.

“This is the type of data the Bank of Canada will be looking for as it enters what should be the last stage of its hiking cycle. We continue to expect another (half percentage point) increase in October, before further evidence of a cooling economy allows the bank to pause its rate increases.”

The Bank of Canada raised its key interest rate target by three-quarters of a percentage point to 3.25% in September in its fight to bring inflation under control. The Canadian central bank’s next interest rate decision is scheduled for Oct. 26 when it will also publish its updated forecast for the economy in its monetary policy report.

Statistics Canada said retail sales in July were down in nine of the 11 subsectors it tracks, representing 94.5% of retail trade. Sales at gasoline stations fell 14.2% for the month while sales at clothing and clothing accessories stores dropped 3.3%. The miscellaneous stores category, which includes pet stores, cannabis stores and office supplies and stationery stores, saw sales rise 0.7%.

Sales at furniture stores fell 3.4% amid weaker activity in the housing market. Sales at electronics and appliance stores fell 2.8%. 

Core retail sales — which exclude gasoline stations and motor vehicle and parts dealers — fell 0.9%. In volume terms, retail sales fell 2.0% in July.

Source: Globe and Mail
Source: The Star

U.S. Retail Sales Rose 0.3% in August, Showing Resilience in Face of Inflation

U.S. retail sales unexpectedly rebounded in August as Americans ramped up purchases of motor vehicles and dined out more amid lower gasoline prices, but demand is cooling as the Federal Reserve aggressively raises interest rates to fight inflation. Consumer spending, however, is likely to remain supported by persistent strength in the labor market, with other data showing the number of people filing new claims for unemployment benefits during the week of September 5 fell to the lowest level in more than three months.

The data was among the last batch of reports released before the Fed’s next policy meeting. Together with a surprise increase in consumer prices in August, the reports likely give the U.S. central bank ammunition to deliver a third consecutive 75-basis-point rate hike.

“Demand appears to be slowing this quarter, but job losses look modest at this point of the economic cycle,” said Christopher Rupkey, chief U.S. economist at FWDBONDS in New York. “The storm clouds of recession threatening the economy have blown further offshore and this will likely convince Fed officials to keep their foot down even harder on the brakes.”

Retail sales increased 0.3% in August, also lifted by back-to-school shopping. But data for July was revised down to show retail sales falling 0.4% instead of being unchanged as previously reported. Economists polled by Reuters had forecast sales would be unchanged, with estimates ranging from as low as a 0.5% decline to as high as a 0.5% increase. Retail sales, which are mostly goods and are not adjusted for inflation, increased 9.1% year-on-year in August.

Source: Wall Street Journal
Source: Reuters