Canadian consumers pulled back on their spending during the second quarter, leading to a 1.8% decline in retail sales, according to recent data.
Statistics Canada revealed today that sales were down another 0.3% in June to $65.7 billion, following a 0.8% pullback in May. The largest decline was seen in sales at motor vehicle and parts dealers, which fell 2.1% month-over-month.
The slowdown suggests that elevated interest rates and a softening labour market are continuing to weigh more heavily on consumer behaviour as Canadians become more cautious with their discretionary spending.
“Consumers continued to tighten their spending in June, building on the significant contraction in May,” wrote Maria Solovieva of TD Economics.
“This ongoing weakness in retail sales will weigh on real personal consumption expenditure, which will have to rely heavily on services spending to support any growth in Q2, currently forecasted at 1.0% q/q (annualized),” she added.
Implications for the Bank of Canada
The latest retail sales data suggests that annualized real GDP growth for the second quarter could reach just below 2%, slightly above the Bank of Canada’s 1.5% forecast.
However, third-quarter growth is expected to fall well short of the Bank’s projections, according to Florence Jean-Jacobs at Desjardins.
As a result, “We expect the BoC to continue cutting its overnight rate in each of the next three meetings this year, ending the year at 3.75%,” she wrote.
The Bank of Canada’s next monetary policy meeting is scheduled for September 4, with markets expecting the Bank to deliver its third consecutive quarter-point rate cut. This would provide further relief for variable-rate mortgage borrowers and those with personal and home equity lines of credit (HELOCs).
Will spending bounce back in July?
Economists are closely watching how these trends will evolve in the coming months and quarters.
StatCan’s early estimate for July retail sales suggests a potential rebound with a 0.6% increase, but this figure is subject to revision when the official data is released on September 20. Whether this potential uptick represents a sustainable recovery or just a temporary blip remains to be seen, especially as economic pressures persist.
“The preliminary estimates have July poised for a bounceback, though it will take time to see a more meaningful recovery amid monetary easing,” noted BMO economist Shelly Kaushik.
But there’s no consensus that a turnaround is imminent, with TD forecasting prolonged weakness in sales.
“Our internal data suggests July spending remained weak, aligning with soft employment figures, but differing from Statistics Canada’s flash estimate,” said TD’s Solovieva. “However, we anticipate a rebound in auto sales as transactions delayed by the tech outages are processed.”
consumer spending economic news Editor's pick Florence Jean-Jacobs gdp Maria Solovieva retail sales Shelly Kaushik statistics canada
Last modified: August 26, 2024
