Canadian retail sales continue their strong performance in August

Retail sales in Canada rose for a fourth straight month, up 0.5% month-on-month in August. This follows an upwardly revised gain of 0.6% in July. The strength in sales was even stronger in real terms - stripping price changes out, retail sales were up 0.7%

Sales gains were concentrated in the four of largest industries (of 11), representing more than half of retail sales by value. Motor vehicle and parts dealers saw another strong performance, with sales up 2.0% in August. Sales also advanced markedly at furniture and home furnishings stores, rising 3.0%. Smaller gains were seen for retailers of clothing and accessories, and food and beverage stores, where sales rose 0.3% and 0.5% respectively.

Looking across the country, 7 provinces saw gains in retail sales, with particular strength in British Columbia (+1.4% m/m), Quebec (+1.2%), and Saskatchewan (+0.8%, breaking a 3 month downward spell). Falling sales were limited to Newfoundland And Labrador (-0.4%), Nova Scotia (-1.1%) and Manitoba (-0.2%)

Retail sales continued their recent ascent in August. The key support to sales provided by low interest rates and gasoline prices was joined in August by the retroactive payment of universal child-care benefits (UCCB) in late July, which undoubtedly helped to support sales growth for August. The details of the report were particularly positive for growth, with a robust gain in sales volumes likely to feed through to strong quarterly GDP growth.

Indeed, today's report suggests that there may be some upside risk to our tracking for third quarter GDP growth, which currently sits at 2.5% annualized. Given the strong monthly momentum coming into the quarter, all signs point to a robust exit from the recession that marked the first half of the year.

From the Bank of Canada's perspective, the retail data is likely to support their revised outlook, which was released yesterday. The Bank expects growth to rebound to 2.5% in the third quarter.

"The special factors supporting the recovery in output are expected to fade thereafter, with growth returning to the 2% range in subsequent quarters. As a result, the output gap is not expected to close until mid-2017. We continue to expect the Bank of Canada to remain on the sidelines through the first half of 2017", says TD Economics.