Cash registers continued to hum along during August, according to figures released this morning by Statistics Canada.
Nominal retail sales in August rose an expected 0.3% following an unrevised 0.7% gain in July. Most of the increase reflected a price-related 2.9% jump in gasoline station receipts. Sales at motor vehicle dealerships had been a factor sending overall retail sales higher in July with that component rising a strong 1.4% though August saw a modest retracement with activity dropping 0.2%. Monitoring by analysts had assumed a much larger correction in August.
Excluding these two volatile components, sales were weaker than expected dropping 0.1% following a 0.4% gain in July. A number of components showed declines in August including sales in clothing (1.1%), health products (0.8%), furniture (0.1%) and in the miscellaneous sales component (3.1%). Some offset was provided by rising sales in sporting goods (1.0%) and general merchandise (0.6%).
The volume of August retail sales dropped 0.3% in the month though this only partially retraced the 0.5% gain in July. As a result of the earlier strength, the level of retail sales volumes in July and August is already up an annualized 2.6% relative to the second quarter. This represents a sharp rebound in spending given the 1.2% annualized decline recorded in Q2 retail sales.
According to experts at RBC Economics, "this augurs well for overall Q3 consumer spending growth, which also includes spending on services, to rebound to 2.3% from the disappointing Q2 increase of only 0.8%. This strength in consumer spending is expected to provide some offset to indications that net exports subtracted from Q3 activity allowing overall GDP to rise around 2.0% in the quarter."
Experts also say the modest decline in the volume of August retail sales is in contrast to indications of a strong gain in manufacturing along with a lesser rise in wholesale trade in the month. "As well, we are assuming an increase in mining activity reflecting the resumption of oil production after upgrader maintenance shutdowns through the summer. These increases will more than offset indications of a modest drop in the retail trade sector and are expected to contribute to a further strengthening in monthly GDP growth to 0.3% in August from gains of 0.2% and 0.1% in July and June, respectively."
The bank concludes, "this monthly pattern is consistent with our current forecasted Q3 annualized gain in GDP of 2.0%. However, this pace of growth is little changed from the 1.9% recorded in Q2 and provides limited prospect of any sustained downward pressure on the unemployment rate. With the Bank of Canada’s policy statement today re-emphasizing its concern about “global headwinds”, policy will need to remain highly accommodative near term to help counter these headwinds and allow economic growth to strengthen going forward."
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