Canadian retail sales remain unchanged in June, household debt levels likely to dampen consumer spending growth

Canada’s retail sales stayed almost the same in June. Sequentially, retail sales remained almost unchanged, following a 0.2 percent fall in May. The release came above consensus expectations of a fall of 0.3 percent. In terms of volumes, retail sales rose 0.4 percent.

June recorded comparatively widespread rises. Indeed, retail sales excluding the volatile autos and gasoline station categories rose 1.7 percent on the month. Solid rises were seen in building material and gardening equipment stores, clothing and clothing accessories stores, sporting goods and general merchandise stores. Lower sales at motor vehicle and parts dealers and at gasoline stations provided the offset.

Region wise, sales rose in 6 provinces out of 10. Nominal sales growth came in positive in Manitoba, Ontario and all the Atlantic provinces. Saskatchewan recorded the largest drop of 2.7 percent, whereas Quebec, Alberta, and British Columbia all recorded a drop of 0.4 percent in sales in the month.

“June's retail sales release was a positive surprise which adds some upside to our 3 percent real GDP tracking for the second quarter and provides a bit of momentum heading into the third quarter”, said TD Economics in a research report.

Looking ahead, the household debt levels are expected to continue to put a damper on retail sales and consumer spending growth. However, the recent surges in wage growth, stabilizing housing markets, and declining borrowing rates would serve to ease some of the existing headwinds to the sector.

“Against this backdrop, the Bank of Canada still faces a tough road ahead, balancing otherwise healthy domestic indicators against elevated external risks”, added TD Economics.