Canadian Retail in July a ‘Positive Surprise,’ but More Rate Cuts Needed to Spark Lasting Activity 

Statistics Canada reported a 0.9% increase in retail sales in July, reaching $66.4 billion, largely due to stronger new-car sales. Sales were higher in seven of the nine sub-sectors, with motor vehicle and parts dealers up 2.2% and new-car dealers up 2.3%. 

The Bank of Canada’s decision to cut its key interest rate in July and again in September to 4.25 per cent has weighed on shoppers, particularly those looking to make big purchases or take out mortgages. Core retail sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers, rose 0.6% in July.

Sales at food and beverage retailers increased due to a 1.2% jump in sales at supermarkets and other grocery retailers, a 2.1% climb at specialty food retailers, and a 0.4% rise at convenience retailers and vending machines operators. Higher sales were also reported at health and personal care retailers in July.

In volume terms, retail sales across the month increased 1.0%. However, sales at gasoline stations and fuel vendors fell 0.6% for the month, as sales for the sub-sector in volume terms fell 1.7%.

Statistics Canada’s preliminary estimate for retail sales in August pointed to a 0.5% gain for the month, though the figure will be revised. Consumers will need more rate cuts to see a more meaningful recovery, and a good start to the quarter is unlikely to sway the odds decisively on whether the Bank of Canada will cut rates by 50 basis points in October.

The report sends a more upbeat signal about the strength of the Canadian economy than the latest gross domestic product data, which pointed to stalling growth in June and July. The data may give central bank officials more confidence that they can tame inflation without steering the economy into a recession.

Source: Globe and Mail
Source: The Star
Source: Financial Post
Source: Statistics Canada

Statistics Canada Reports Real GDP Grew 0.2% in July

The retail trade sector played a role in the 0.2% growth in the Canadian economy that occurred in July. The real GDP for the month of August was virtually unchanged, suggesting that the momentum did not continue into August. Weaknesses in manufacturing, transportation, and warehousing were counterbalanced by strengths in the public sector and oil and gas extraction. 

While advanced estimates are often revised, the August numbers suggest that the Canadian economy “remains in a growth funk,” Bank of Montreal chief economist Douglas Porter wrote in a note to clients. “Canadian real GDP growth is tracking below 1.5 per cent in Q3, below potential and even below the modest pace of the past year. This means that even further slack in opening up in the economy, which will eventually put more downward pressure on inflation,” Mr. Porter wrote.

Statistics Canada is expected to release its September jobs report on October 11 and its latest figures for inflation on October 15. The Bank of Canada’s next interest rate decision is set for October 23 when it will also update its economic forecasts in its monetary policy report.

TD Bank economist Marc Ercolao said more interest rate cuts are likely at the Bank of Canada’s next rate decision in late October. He suggested that more emphasis will be placed on upcoming labor market data and inflation data, where the bank will be looking for signs that price growth can remain durable at 2.5%. 

The economic growth in July came as services-producing industries grew 0.2%. The retail trade sector was the largest contributor to overall growth, with the motor vehicles and parts dealers sub-sector gaining 2.8%. The public sector aggregate, including educational services, healthcare and social assistance, and public administration sectors, gained 0.3%, while the finance and insurance sector rose 0.5%.

Wildfires affected several industries, with transportation and warehousing falling 0.4% and accommodation services falling 2% due to forest fires in Western Canada. Governor Tiff Macklem has said it is reasonable to expect more interest rate cuts, given the progress made on inflation, but the pace and timing of cuts will depend on the central bank’s evaluation of the economic data.

Source: The Star
Source: Globe and Mail
Source: Financial Post
Source: Statistics Canada