Retail Sales Drop in Canada

By Promit Mukherjee

OTTAWA (Reuters) – Canada’s retail sales dropped in June, according to data released on Friday, as consumers continued to feel the impact of high interest rates and reduced discretionary spending.

Retail sales, which encompass local purchases of vehicles, clothing, furniture, food and beverages, decreased by 0.3% on a monthly basis, a slight improvement from last month’s 0.8% decline.

The downturn was primarily attributed to fewer customers buying vehicles and automotive parts, alongside lower purchases of personal care products and sporting goods, as reported by Statistics Canada.

Analysts had predicted a 0.3% drop in June’s sales, with a 0.2% decrease estimated when excluding automotive and parts.

Preliminary Estimates for July

According to an early estimate by Statistics Canada, preliminary figures for July suggested that retail sales likely increased by 0.6%.

Interest Rate Adjustments

In July, the Bank of Canada lowered its key policy rate for the second consecutive time, bringing it down to 4.5%, after maintaining a high rate above 23 years for a year. Elevated interest rates have limited consumer spending and business investments, consequently slowing economic growth, although they have been effective in easing consumer prices.

During the last monetary policy meeting, Governor Tiff Macklem indicated a potential shift in focus towards boosting economic growth instead of merely controlling inflation.

Upcoming Economic Reports

Next week, the statistics agency will release Canada’s GDP numbers for June and the second quarter. This will be a crucial data point before the bank’s next monetary policy decision on Sept. 4.

Markets anticipate that the Bank of Canada may cut rates by another 25 basis points next month, with further cuts expected in October and December.

As of 1240 GMT, the Canadian dollar was trading up 0.24% to 1.3582 against the U.S. dollar, equivalent to 73.63 U.S. cents. The two-year government bond yield decreased by 2.1 basis points to 3.404%.

For the second quarter, retail sales dropped by 0.5%, with a 0.3% decrease in volume, according to Statscan.

Katherine Judge, Director & Senior Economist at CIBC Capital Markets, noted that the decline in quarterly sales indicates ongoing struggles for consumers as mortgages are renewed and the labor market weakens, forecasting that the Bank of Canada will likely continue cutting interest rates at each of the remaining meetings this year.

Retail sales amounted to C$65.73 billion ($48.39 billion), with declines observed in four out of nine subsectors. On a positive note, sales volume saw a 0.1% increase in June.