Canadian retail spending drops surprisingly in August

Canada’s retail spending fell surprisingly in August. On a sequential basis, retail sales in Canada dropped 0.1 percent, as compared to projections of a rise of 0.3 percent. Moreover, spending growth for the month of July was downwardly revised to a rise of 0.2 percent from a rise of 0.3 percent. Excluding the price effects, retail sales in terms of volumes dropped by 0.3 percent in August.

Sales at motor vehicles and parts dealers rose 0.8 percent, contributing the most to the headline figure. Stripping this category, spending dropped 0.4 percent, being dragged by sales at gasoline stations.

Sales at furniture and home furnishing stores also dropped in the month. Sales were lower even at electronics and appliance stores, building material and garden equipment supplies stores, clothing stores and for miscellaneous retailers. On the contrary, a comparatively solid gain was reported for health and personal care stores.

Region wise, the softness was comparatively narrow, with sales lower in 4 out of 10 provinces. Spending dropped sharply in Saskatchewan while also falling in Quebec, Alberta, and British Columbia.

Increasing borrowing costs seem to be dragging on household spending, with retail spending gearing down in the third quarter. With August’s weak print, volumes dropped 0.5 percent so far in the third quarter. This puts some downside risk to the already modest forecast for consumer spending to grow at an annualized rate of 1.8 percent in the third quarter.

One of the main worries held by the Bank of Canada was how highly-indebted consumers would respond as interest rates move higher.

“On this score, August's soft spending report may suggest that given these challenges, the number of rate hikes required to keep the economy on an even keel may be smaller than it has been in the past”, added TD Economics.

At 16:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was bearish at -91.8932, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 46.0375. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex