Canadian Retail Sales Up 0.7% to $61.8-Billion in August; Estimate Suggests Drop in September

Statistics Canada says retail sales edged up 0.7% to $61.8-billion in August as high gas prices eased slightly and e-commerce sales increased. However, the agency’s preliminary estimate for September hinted much of the overall August gain might have been erased the next month, when retail sales fell 0.5%.

July 2022 August 2022 July to August 2022
millions of dollars millions of dollars % change
Total retail trade (current dollars) 61,329 61,759 0.7

While StatsCan cautioned the figure would be revised, Andrew Grantham of CIBC Economics saw it as a sign that “the Canadian consumer appears to be surviving, but no longer thriving.” Between the high inflation rate and the interest rate consistently being hiked, Canadians are feeling the pinch with every purchase. As Russia continues to attack Ukraine and supply chain issues induced by the pandemic persist, many economists have little belief that consumer purchasing power will soon improve.

“It’s no surprise that consumers are becoming more cautious, and have been scaling back on discretionary items, such as dining out and entertainment, with monthly gains in sales at bars and restaurants fizzing out over the summer months,” said Ksenia Bushmeneva of TD Economics, in a note to investors. “All in all, consumers will have to make some tough choices in the months ahead, all of which point to significantly weaker consumer spending in 2023.”

Mr. Grantham and Ms. Bushmeneva’s predictions were based on StatsCan’s findings that show retail sales in August rose in six of the 11 subsectors.

Sales at building material and garden equipment and supplies dealers saw an increase of 0.6% growth for the month but this was also a 12.1% increase over August 2021. Sales at food and beverage stores gained 2.4% for the month, while sporting goods, hobby, book and music stores added 5.0%. Sales at motor-vehicle and parts dealers rose 0.6%.

July 2022 August 2022 July to August 2022
millions of dollars millions of dollars % change
Building material and garden equipment
and supplies dealers
4,159 4,183 0.6

One of the quarter’s standout gains came from retail e-commerce sales, which were up 5.7% on a seasonally-adjusted basis in August. On an unadjusted basis, they increased 8.1% year-over-year to $3.5-billion and accounted for 5.2% of total retail trade – a percentage that was unchanged from last year.

Meanwhile, sales at gasoline stations dropped 0.2% in August and on an unadjusted basis tumbled 9.6% because of higher global production. “Lower gasoline prices put consumers in better spirits and back behind the wheels to savour those final days of summer,” said Ms. Bushmeneva. She pointed out that gasoline sales at stations rose 7% in volume terms – the first increase since April.

Core retail sales – which exclude gasoline stations and motor-vehicle and parts dealers – increased 0.9%. In volume terms, StatsCan said retail sales gained 1.1% in August.

Shortly after the retail sales data were released, the Conference Board of Canada published its Index of Consumer Spending, which found consumer spending growth remained relatively unchanged in September as it decreased slightly to 95.8 points. Though the unemployment rate fell to 5.2% in September because fewer people were searching for work and the inflation rate also dipped, the board pointed out that more interest rates appear to be on the horizon.

In a news release, the board said, “Many households, especially those highly indebted, will feel the impact of these rate increases and will look to spend less.”

Source: Globe and Mail
Source: Statistics Canada

U.S. Retail Sales Unexpectedly Flat in September as High Inflation, Rising Interest Rates Crimp Demand

U.S. retail sales were unexpectedly flat in September as households cut back on purchases of big-ticket items amid stubbornly high inflation and rapidly rising interest rates. But consumers are not rolling over yet, with the report from the Commerce Department also showing a measure of underlying retail sales rising last month. The so-called core retail sales were also stronger than previously thought in August.

“Overall, households continue to spend, supported by strong job growth and rising nominal incomes,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “But higher borrowing costs and elevated inflation will remain headwinds for spending going forward.”

The unchanged reading in retail sales in September followed an upwardly revised 0.4% rise in August. Sales in August were previously reported to have gained 0.3%. Retail sales increased 8.2% year-on-year in September. Economists polled by Reuters had forecast sales would climb 0.2%, with estimates ranging from as low as a 1.1% decline to as high as a 0.8% increase.

Soaring costs for rents and health care are squeezing budgets for many Americans, leading them to reduce spending on goods. The situation has been compounded by higher borrowing costs, which are making credit more expensive.

The Federal Reserve has raised its policy rate from the near-zero level in March to the current range of 3.00% to 3.25% as it battles inflation. A fourth straight 75-basis-point interest rate hike is expected in October.

“While consumers remain willing to spend, many families, especially those at the lower-to-median end of the income spectrum, are feeling increasingly constrained by elevated prices and rising interest rates,” said Gregory Daco, chief economist at EY-Parthenon in New York.

Sales are slowing also as spending shifts back to services. Retail sales are mostly goods and are not adjusted for inflation.

Receipts at furniture stores fell 0.7%, while sales at building material and garden equipment retailers decreased 0.4%. Sales at electronics and appliance stores declined 0.8%. There were also decreases in sales at hobby, musical instrument and book stores, a sign that consumers were cutting back on discretionary spending. Sales at general merchandise stores rose 0.5%. Online and mail-order retail sales also gained 0.5%.

U.S. stocks opened higher. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.

Core retail sales correspond most closely with the consumer spending component of gross domestic product. The increase in September and upward revision to August core retail sales left economists expecting that growth in consumer spending likely topped a 1.0% annualized rate in the third quarter after increasing at a 2.0 % pace in the April-June quarter.

But there are some glimmers of hope in the fight against inflation. A separate report from the Labor Department showed import prices dropped for a third straight month in September, pulled down by falling costs for petroleum products and a strong dollar, suggesting that imported inflation pressures were subsiding as global supply chains improve.

Import prices decreased 1.2% in September after declining 1.1% in August. In the 12 months through September, import prices increased 6.0%, the smallest rise since February 2021, after advancing 7.8% in August.

Excluding fuel and food, import prices fell 0.5%. These so-called core import prices dipped 0.1% in August. They increased 3.3% on a year-on-year basis in September. The strength of the dollar is helping to limit the increase in core import prices.

The dollar has gained 10.5% against the currencies of the United States’ main trade partners since January.

 Source: Globe and Mail