Autos and Gasoline Boost Canada Retail Sales in September

Sales at U.S. retail stores rebounded in September, with auto dealers and gas stations racking up the biggest gains, in a sign consumers are still spending enough to keep the economy on a slow but steady growth path.

Retail sales rose 0.6 percent, in line with economists' expectations, but would have been flat without the increased purchases of cars and parts.

Sales at motor vehicle and parts dealers led the way, rising 2.4 percent. Besides the increase in new car sales, Canadians paid more for gasoline.

Economists have been waiting for a healthy pop in retail sales in Canada after the Liberal government in late July began sending checks to families with young children as part of a tax break. The Canadian government has pledged tens of billions of dollars over a multi year period to help stoke growth and offset the hit sustained by the energy sector from lower commodity prices.

“The uptick after a series of soft retail reports is a relief,” said Doug Porter, chief economist at BMO Capital Markets.

“There is not much dramatic new news on the retail front,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

Canada’s economy continues to struggle as it adjusts to lower commodity prices. Bank of Canada Governor Stephen Poloz said central bank officials “actively discussed” last month adding further monetary easing before opting to keep the policy rate at 0.5%.

There is concern the recent climb in bond yields in the aftermath of President-elect Donald Trump’s election victory could slow Canadian domestic consumption further, given Canadian households elevated debt levels. Higher yields tend to translate into higher borrowing costs and interest rates on loans and lines of credit.

Sectors acting as a drag on the retail sector were food and beverage stores, down 0.8%, and health and personal care stores and miscellaneous store retailers also experiencing a decline, -0.6% and -0.3% respectively.

Excluding autos and gasoline, retail sales rose at more moderate 0.3% clip in September. The pace of sales during the third quarter was weaker than expected, spurring some economists to downgrade their estimates for gross domestic product.