Retail sales decreased by 0.1% month-on-month (m/m) in August, which was better than the initial estimate of a 0.3% m/m decline by Statistics Canada, but in line with expectations. The July figure was revised upwards to 0.4% m/m from the initial estimate of 0.3% m/m.
When adjusted for inflation, the volume of retail sales decreased by 0.6% on a monthly basis.
Sales at motor vehicle and parts dealers declined by 0.9% m/m for the second consecutive month. Excluding automotive sales, retail sales increased by 0.1% m/m, surpassing the consensus estimate for a similar decline.
Gasoline stations and fuel vendors experienced a sales growth of 2.8% due to a spike in oil prices, resulting in higher gas prices. However, in terms of volume, receipts decreased by 2.9% m/m in August.
Excluding car dealerships and gas stations, core retail sales declined by 0.3% in August. The major driver of this decline was the 1.2% m/m decrease in sales at food and beverage stores, although most other categories also saw declines in August.
Only three other major categories reported gains in August: health and personal care stores (+1.2% m/m), electronics and appliance stores (+0.3% m/m), general merchandise stores (+0.3% m/m).
E-commerce sales also declined, dropping by 2.0% m/m in August after three consecutive months of strong gains.
According to Statistics Canada, around 12% of Canadian retailers reported that the strike at the ports in British Columbia affected their business activities in August.
Based on the response from 36.5% of surveyed companies, the advanced estimate for September suggests a flat reading. This is better than our own estimate of consumer activity based on TD debit/credit card spending, which indicates a decline in September.
Key Implications
Retail sales were weak in August, but with the upward revisions to July’s figures, it is not enough to jeopardize the modest consumer spending profile in the third quarter. We anticipate that personal consumption expenditure will grow at a pace of only 1-1.5% in the third quarter, in line with our internal spend data.
The risks for the Canadian economy are gradually shifting towards the downside as consumer confidence continues to be affected by the Bank of Canada’s rate hikes and high inflation. This allows the Bank to maintain a neutral stance in its upcoming decision. We expect that moderate demand will dampen inflation going forward, while keeping spending slightly below the trend without causing disruption to the economy.
