How will this influence the Bank of Canada's thinking on interest rates?
Canadian retail sales are projected to have increased by 0.6% in July, marking a rebound from the 0.3% decline observed in June, according to an estimate from Statistics Canada. This data has indicated only the second monthly gain in retail sales for the year.
The first half of 2024 has been challenging for the retail sector, according to a Bloomberg report. Sales were down 0.5% in the second quarter, following a 0.4% drop in the first quarter. These figures represent the weakest two consecutive quarters for retail sales since 2009, excluding the pandemic period. This persistent weakness in retail performance underscores the Bank of Canada’s likely decision to continue cutting interest rates at its next meeting on September 4.
The decline in June was particularly pronounced in the automotive sector, which experienced a decrease in sales due to lower new car sales. Bloomberg said this slump was partly attributed to disruptions caused by a cyberattack on CDK Global, a major provider of software for auto dealerships. The attack, which was discovered on June 19, led to significant operational challenges for dealerships until systems were restored by early July.
Sales weak in several segments
Economist Maria Solovieva of Toronto-Dominion Bank has projected a rebound in auto sales as the delayed transactions from June are processed. However, she noted in an email to Bloomberg that consumer spending remained cautious, continuing the trend of reduced expenditure observed in previous months.
Despite the overall increase in July, Solovieva cautioned that early indicators suggest only modest improvement. “Our internal data suggests July spending remained weak, aligning with soft employment figures and Statistics Canada’s flash estimate,” she said.
The 0.6% rise in retail sales for July would be the largest monthly increase since December, Bloomberg highlighted. This recovery has coincided with the Bank of Canada’s recent policy rate cuts in June and July, which have reduced the rate to 4.5%. With inflation easing and the job market weakening, economists expect the central bank to continue its rate reduction strategy in the near term.
Excluding automotive sales, retail receipts in June rose by 0.3%, surpassing expectations for a 0.2% decline. Core retail sales, which exclude gas stations and car dealers, saw a 0.4% increase. However, regional data shows that sales fell in seven of the 10 provinces, with Ontario being a major contributor to the overall decline. Toronto, however, reported a 0.3% increase in sales.
The estimate for July is based on responses from 53.4% of surveyed companies. This response rate is lower than the average of 89.6% over the past year, which may affect the precision of the data.
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