Canada retail sales rose 0.6% in September – RBC Economics

Nathan Janzen, Senior Economist at RBC Economics, notes that excluding a large gain in the motor vehicle component, Canada’s retail sales were unchanged from August and the volume of sales also rose 0.6% in September following a revised flat (was –0.3%) reading in August.

Key Quotes

“Although the bulk of the nominal increase in total September retail sales was concentrated in a 2.4% gain in the motor vehicle component, Statistics Canada noted that sales increased in 7 of 11 subsectors including a 0.7% gain in building material store sales and a 0.4% increase in general merchandise stores.  Nominal gasoline station sales rose 0.9%, but likely reflecting the impact of higher prices rather than a higher volume of goods sold.  The main source of offset was a 0.8% drop in food sales that may also have been price-related with Statistics Canada noting that the CPI food price index declined on a year-over-year basis in September for the first time since 2008.” 

“Our Take:

The rise in the volume of retail sales in September, and upward revision to August, left the measure up an annualized 0.7% in Q3 following the disappointing 2.1% drop in Q2 that in turn partly retraced an outsized 6.2% Q1 jump.  Notwithstanding monthly/quarterly volatility, we expect retail sales remain on a modestly upward underlying path with data also broadly consistent with our expectation that overall consumer spending (including spending on services) rose at a 1 1/2% rate in Q3. 

In terms of implications for overall GDP growth, the monthly gain in retail sale volumes provides some offset to a weaker-than-expected wholesale trade report.  With the details of the earlier-released manufacturing sales report (including a rise in inventories) pointing to somewhat more support from that sector than the 0.2% dip in sale volumes alone would imply, the data, on balance, remains consistent with a modest gain in GDP in September.  We expect a 0.1% increase that, while slightly smaller than the 0.2% increase we were expecting before this week’s data, is nonetheless still consistent with growth in Q3 as a whole bouncing back to a 3 1/2 % rate from the wildfire-related 1.6% pull-back in Q2.”