Canadian Core Retail Sales Post 0.1% Fall

The Canadian retail sales data released on Friday revealed a 0.1% slump in the month of July after a revised unchanged reading in June, which was initially reported at -0.1%. This was lower than the forecasted 0.2% growth for the month as the year on year growth reached 2.3%. The underlying outlook showed a bit more positivity as sales edged lower mostly due to a sharp fall in gasoline sales and prices within the month, with demand still relatively subdued.

There was also a 0.1% fall in core sales on the month following a revised 0.6% slump previously recorded, which was originally a 0.8% fall. Out of 11 sub-sectors, sales was recorded lower in 5 for the month. In terms of volume, sales grew by 0.3% on the month with its annual rise reaching 2.0%, implying that the actual source of weakness in the month of July was the lower prices.

With volumes posting an increase, all of the weakness in July retail sales can be attributed to weak gas prices, said CIBC Capital Markets economist Nick Exarhos. “The volume gain should be enough to keep us on track for decent monthly gain in July GDP,” he said in a note, leaving the third quarter tracking growth of about 3% after a contraction in the previous three-month period.

Excluding the auto sector, the value of retail sales fell 0.1% in July. The biggest contributor to the overall decline was a 3.0% drop in gasoline sales, reflecting lower prices at gas stations and marking the first such decline since March. Furniture-store sales fell 1.4% in July, and sales by motor vehicle and parts dealers dropped 0.2%, their fourth decline in five months.

The data overall will dampen expectations surrounding the consumer spending outlook, although the July data has been undermined by a drop in gasoline prices and the underlying outlook is more encouraging.

The data is not likely to have significant policy implications, but will maintain the Bank of Canada focus on inflation trends given recent softness in prices. The Canadian dollar remained under pressure following the data, especially with the CPI print significantly weaker than expected with USD/CAD testing 1.3150 from 1.3035 ahead of the release.