News & analysis

Canadian retail sales for August met expectations at -0.1% MoM, softening from a 0.3% print the month prior. Excluding autos and gas, core retail sales edged up by 0.1% MoM, beating expectations but 0.2pp but weakening considerably from July’s 1.0% gain.

In volume terms, the report confirmed the downward trend, which fell by -0.6% on a seasonally adjusted basis, the third consecutive month of decline. The breadth of growth across sectors is notably low, with only 1 of 9 retail sub-sectors seeing positive volumes growth over the last three months. With the advance indicator for September pointing to no growth in nominal sales, the downward trend in volumes most likely remained intact. This confirms our overall view that domestic demand is likely to weaken further, which could tip the Canadian economy into a mild recession in 2024.

Following the latest Q3 surveys and inflation data, the Bank of Canada didn’t need more reasons to hold rates at 5% next week, but today’s retail sales report gave them one anyway.

For August alone, breadth was marginally stronger than on a 3-month basis, with 2 of 9 sub-sectors seeing positive volumes growth. Specifically, auto dealers (+0.1%) and health care retailers (+0.8%) saw their volumes rise. Notably, while dollar sales growth was strong for health care (+1.2%), it was negative for autos (-0.8%), indicating that dealerships are cutting prices in the face of faltering demand. In dollar terms, gas stations were the main source of positive growth, with sales up 2.8%. Considering that gasoline prices peaked in August, this is set to reverse in September, but October will likely display an even greater decline in sales at gas stations due to the larger drop in gasoline prices. Regionally, dollar sales growth was stronger in the East Coast and the prairies, with positive readings in PEI (+2.3%), Nova Scotia (+1.8%), Manitoba (+1.6%), and Alberta (+0.9%). Sales were flat in Ontario and Saskatchewan, and fell in all other provinces.

Retail sales volumes are declining, a sign of weakening domestic demand




Jay Zhao-Murray, FX Market Analyst


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