Canada’s retail sales disappoint in June; consumer spending likely to recover in Q3

Canada’s retail sales dropped 0.1 percent in sequential terms in June, after a downwardly revised flat print in May. June’s headline print completely missed the mark, coming in considerably lower than the consensus projection of a strong growth of 0.5 percent. Retail sales came in much weaker in volume terms as sales dropped 0.3 percent after excluding price effects.

Consumers in Canada have been unsuccessful in reviving their love for shopping in June, as seen by the sluggish sales throughout most categories. Excluding price effects, sales have dropped in three of the last four months. As such retail sales volumes for the second quarter dropped 2.3 percent on an annualized basis. This implies that goods spending are expected to have shrunk in the quarter, said TD Economics in a research note.

June’s retail sales data leaves the current tracking for real GDP growth at -1.5 percent with certain downside potential, further strengthening the view that Canada’s economy contracted in the second quarter, stated TD Economics. Consumer spending (and growth) is expected to recover in the third quarter, strengthened by reconstruction activity following the Alberta wildfires and the additional household transfers given by the Canada Child Benefit payments that started in late July.

Consumer spending, beyond the near term, is expected to begin stabilizing at a speed below 2 percent, with the rate of spending held back by moderate employment gains and increased debt levels. The regional breakdown is not expected to alter much by the end of 2016, as regions producing oil continue to adjust to low price environment, while labor market developments and the still-low Canadian dollar and gasoline prices carry on favouring sales activity in other regions, noted TD Economics.

Looking into details, June’s retail sales report was widely disappointing as sales declined in seven of the 11 subsectors, representing 54 percent of retail trade. The headline sales dropped in June due to weaker sales recorded at food and beverage, clothing and clothing accessories and building material and garden equipment stores.

Stripping sales at auto dealers and gasoline stations, core sales dropped weaker -1.2 percent month-on-month in June. Region wise, the largest drop in sales was seen in Nova Scotia and Quebec, where sales declined 0.8 percent at both places. Sales also fell in Alberta by 0.4 percent. Meanwhile, Saskatchewan and New Brunswick registered positive sales figure, 2.1 percent and 1.8 percent respectively.