Is the case for a Bank of Canada rate cut getting stronger?
![Canada’s retail sales slump as high rates impact consumer spending](https://cdn-res.keymedia.com/cdn-cgi/image/w=1000,h=600,f=auto/https://cdn-res.keymedia.com/cms/images/us/074/0305_638572482713004283.jpg)
Canadian retail sales declined for the second consecutive month in June, reflecting cautious spending by consumers amid high interest rates.
Statistics Canada’s advance estimate released Friday shows a 0.3% decrease in retail receipts for June, following a decrease of 0.8% in May. These figures, according to Bloomberg, were lower than projections of a 0.6% decline.
The trend in declining retail sales over the first half of 2024 points to a 0.2% decrease for the second quarter, following a 0.4% drop in Q1. The sole increase in sales occurred in April, with a modest 0.6% gain. This ongoing downturn is expected to strengthen arguments for the Bank of Canada to implement another rate cut during its meeting next Wednesday. The Canadian dollar fell nearly 0.2% to C$1.373 per US dollar, with market odds for a July rate cut exceeding 95%.
Decrease seen in most subsectors
May’s sales figures showed declines across eight of nine retail subsectors, with the most significant reductions seen in hardware stores, food and beverage retailers, and clothing stores. Auto dealers were the exception, reporting their third monthly sales increase in four months. Overall, the data demonstrates a cutback on discretionary purchases, including furniture, electronics, and sporting goods, as Canadians adjust to higher interest rates and living costs.
“Canadian consumer spending continues to struggle with the impact of past rate hikes and higher living costs,” said Robert Kavcic, senior economist at the Bank of Montreal (BMO), in a report to investors. He contrasted this with the robust retail sales report from the US earlier in the week. Bloomberg noted Kavcic’s analysis aligns with Statistics Canada’s initial estimate of below-2% GDP growth for the second quarter.
In volume terms, retail sales fell 0.7% in May. Excluding autos, the decline was even steeper at 1.3%, significantly surpassing the expected 0.5% drop. Regionally, nine provinces reported declines in May, with Alberta seeing the largest drop due to lower car sales, contrary to the national trend. British Columbia, particularly Vancouver, also faced significant decreases. Nova Scotia was the only province with rising retail activity, driven by increased vehicle sales.
The June flash estimate, based on responses from 50.3% of surveyed companies, lacks detailed breakdowns. Historically, the average final response rate has been 90% over the previous 12 months.
The persistent decline in consumer spending amid high interest rates and rising living costs underscores the challenges facing the Canadian economy. All eyes are now on the upcoming Bank of Canada meeting for potential rate adjustments.
Do you have any thoughts about this new report? Let us know in the comments below.