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Canadian retail sales rose 0.6 % (m/m) in June, following a downwardly revised increase of 0.9% last month, beating market expectations of a 0.2% increase. However, when stripping away prices, retail sales volumes (0.0%) saw no improvement from the month prior.
Stronger sales were recorded in 8 out of the 11 subsectors - representing 64% of retail trade. Electronics and appliance stores (+9.4%) recorded the largest gain on the month. Meanwhile, rising gasoline prices (+5.3% m/m) helped prop up sales at gas stations (+2.6%), marking the fifth consecutive monthly gain in the category (following seven consecutive months of decreases). More subdued but respectable gains were recorded in sporting goods (+1.3%), health and personal care (+0.5%) and furniture (+0.5%) stores.
"Sales activity slowed in motor vehicle and parts dealers (-0.1%) and building material and garden equipment stores (-1.4%) - the two usual suspects of strength over the past few months. Sales also fell at clothing stores (-0.4%) for the second consecutive month", notes TD Economics.
On a regional basis, sales were up across the board, rising for a second consecutive month in all provinces (except for Saskatchewan's modest decline of 0.1% in May). The Atlantic provinces of Newfoundland and Labrador (+1.8%) and New Brunswick (+1.3%) led the way, while all other provinces recorded gains between 0.2% and 0.8%.
"Today's data release brings the second quarter of 2015 to a close. Despite the fact that real sales were unchanged in June from the month prior, retail volumes were still up +1.6% (annualized) in Q2 - a significant improvement from the pace of growth in the first quarter (-1.5%). After incorporating this morning's release, real household consumption is estimated to have increased 2.8% (annualized) in Q2, but this was likely not enough to lift up real GDP. Today's data release leaves our current tracking for Q2 real GDP growth at -1.0% (annualized), reinforcing our view of a second consecutive contraction", says TD Economics.
In the near term, household spending can be expected to pick up, as Canadian families spend the windfall received from the federal government in the form of enhanced Universal Child Care Benefit payments. It is believed the lump-sum payment received in July to contribute about 0.4 percentage points to annualized real GDP growth in Q3, with the effect fading thereafter.
The current low interest rate environment remains supportive of consumer spending, particularly for categories related to big ticket items such as autos and housing. And despite the challenges that the Canadian consumer faces, particularly in oil-producing regions, it is poised to be a key driver of economic growth yet again this year. But high and rising debt burdens, along with an eventual increase in long-term borrowing rates, suggest that real consumer spending growth is likely to diminish next year.
