Canadian Retail Sales Rose 2.1% in August, Likely Reversed Course in September

Canadian retail sales rose 2.1% to $57.2 billion in August, boosted by gains at food and beverage stores, gasoline stations and clothing and clothing accessories stores. In volume terms, retail sales rose 1.4% in August.

However, Statistics Canada said that its initial estimate for September suggests retail sales reversed course in September and fell 1.9%, though it cautioned the figure will be revised. The agency also said its early estimate for manufacturing sales in September point to a drop of 3.2% for the month, due in large part to the transportation equipment industry.

CIBC senior economist Royce Mendes said retail sales roared back in August, but then took another breather in September. “The ugly flash readings for retail sales and manufacturing will dent our previously heady GDP forecast for the month,” Mendes wrote in a note to clients. “However, while goods sectors were plagued by supply chain challenges, according to the labour force survey data, activity across a range of services sectors was increasing.”

The jobs report for September showed employment returned to pre-pandemic levels for the first time as the economy gained 157,000 jobs for the month.

In August, retail sales were up in nine of 11 subsectors as core retail sales — which exclude gasoline stations and motor vehicle and parts dealers — gained 2.7%. Sales at food and beverage stores rose 4.8%, to post their first increase in three months, as sales at supermarkets and other grocery stores gained 4.5% to lead the way higher.

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

Canada’s Annual Inflation Rate Hits 4.4% in September, Highest Since 2003

The cost to put food on the table and gasoline in the car pushed up the cost of living in September, lifting the annual pace of price increases to a near two-decade high with no clear end in sight to the elevated readings. Overall, headline inflation in September was 4.4% — the fastest annual pace since February 2003. Statistics Canada said the annual inflation rate would have been 3.5% had it excluded gasoline prices from its calculation. Economists warned that inflation readings could hover around 4% until the end of the year.

Driving much of the overall rise in the consumer price index were prices at the pumps, as consumers paid 32.8% for gasoline than in September 2020. Prices were higher in all eight major components, including a  4.8% increase in shelter and a 3.9% increase in food.

Garima Talwar Kapoor, director of policy and research at Maytree, an anti-poverty think-tank, said people with higher disposable income may simply forgo some restaurant outings if inflation remains high. The choices would be more severe for those with low or fixed incomes whose earnings have stayed stagnant, she said, meaning their purchasing power is diminished as prices rise faster than wages. “Their ability to be able to manage their disposable income becomes tighter and tighter, and you’re not foregoing a nice dinner out, but you’re actually forgoing a meal, you’re foregoing prescription medication and necessities like that,” Talwar Kapoor said.

September marked the sixth consecutive month that headline inflation has clocked in above the Bank of Canada’s target range of between 1%-3%, something that hasn’t happened since a six-month stretch that ended in March 2003. CIBC senior economist Royce Mendes said a silver lining is that consumers collectively are sitting on piles of savings that should help them and businesses weather the inflationary storm. “That’s the only bit of good news that we can say about the inflation this time around is that the economy might be able to handle it a little bit better than it would have in previous decades,” he said.

Boosting prices has been global supply-chain bottlenecks that have driven up transport costs, which are being passed on to buyers. Bank of Canada governor Tiff Macklem said last week bottlenecks have proven more persistent than first believed, but recent inflation readings are “transitory,” or a temporary issue.

BMO chief economist Douglas Porter said he expects inflation to average 3.3% this year and next because of the broad nature of price pressures, such as for new vehicles or new homes. “Suffice it to say,” he wrote, “that strains the definition of transitory.”

Statistics Canada said the average of the three measures for core inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 2.67% for September, up from 2.6% in August. September’s average was the highest since December 2008.

Mackelm has said the bank would act if the current bout of price increases looks to become more than one-off pressure points. Measures it could take include raising the key interest rate or further rollbacks in its stimulus-measure bond purchases. Higher rates would push up interest rates on mortgages, car and business loans, which usually cools consumer demand.

While the CPI doesn’t entirely capture the frenzy in Canada’s housing market, there are pockets with substantial price increases. Notably, the homeowners’ replacement cost index – which is tied to the price of new home structures – jumped 14.4% in September from a year earlier.

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

Canadian Economy Grew 0.4% in August, Estimate Suggests GDP Unchanged for September

Canada’s economic growth unexpectedly faltered at the end of the third quarter, casting doubts on the strength of the nation’s recovery. Gross domestic product was little changed in September, according to a preliminary estimate from Statistics Canada released on October 29, while the expansion was a less-than-expected 0.4% in August. Overall for the third quarter, the economy grew by 0.5%, or an annualized pace of around 2%.

Highlights from Statistics Canada’s report show:

  • Retail trade rose 1.8% in August, more than offsetting the 0.6% contraction in July, with 9 of 12 subsectors posting gains.
  • Furniture and home furnishing stores (-2.3%) contracted in August, in part due to global supply chain constraints.
  • The manufacturing sector was up 0.5% in August, following a 1.6% contraction in July, with non-durable goods manufacturing contributing the most to the growth.
  • Durable goods manufacturing edged up 0.1% as fabricated metal product (+3.5%) was up, while primary metal (-3.6%), and wood product (-2.7%) manufacturing were down.
  • Construction was essentially unchanged in August, as a 0.8% contraction in residential building construction offset growth in repair construction (+0.9%), engineering and other construction activities (+0.2%) and non-residential building construction (+0.4%).

The data could cast doubt on the Bank of Canada’s ability to start a cycle of interest rate increases early next year, as investors are anticipating, to combat rising inflation. It’s a disappointing result, even from recently downgraded estimates for the three-month period, after an even weaker first half of the year. “It’s one piece of evidence on the side of a less aggressive tightening cycle next year,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said in a report to investors.

Canada’s currency fell 0.4% to 80.71 US cents at 9:03 a.m. in Toronto trading, paring all of its gains since the Bank of Canada accelerated its timeline for potential rate hikes on October 27. In its policy decision, the central bank pared back its growth forecasts for the third quarter to 5.5%, even as it ramped up its estimates of inflation. Economists were anticipating 4% annualized growth for the three-month period, according to the median estimate in a Bloomberg survey in October.

The report suggests that the supply chain disruptions that have been intensifying in recent months are significantly weighing on the trajectory of Canada’s economic recovery. September’s stall was led by drops in retail and manufacturing, according to the statistics agency. For August, global supply chain issues also held back sales of furniture and motor vehicles. While economists largely expect the supply chain disruptions to ease in coming months, there’s more uncertainty on how long they will last.

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