Canada’s retail sales climbed in both September and October but economists are warning that the underlying numbers aren’t as strong as they may seem.
Statistics Canada reported on Friday that retail sales climbed 0.6 per cent in September, while advance estimates predict 0.8-per-cent growth in October, which far exceeded economists’ predictions and would mark the biggest jump since April.
“It’s a blowout number,” Craig Alexander, president of Alexander Economic Views, told BNN Bloomberg in a television interview on Friday. “If you annualize a 0.8-per-cent gain, a 0.6-per-cent gain, those are really strong numbers and quite surprising given what we’ve been seeing in terms of things like consumer confidence readings.”
Charles St-Arnaud, chief economist with Alberta Central and a former economist with the Bank of Canada, said the underlying numbers are more in line with expectations.
“When we look at the headline, it was a bit of a surprise because the market was really expecting a flat reading,” he said. “When you look at the details, it’s relatively in line with what we were expecting. I was expecting we would see some strength in auto and parts dealers and that’s what we’ve seen.”
Car and parts dealers led the growth in September, climbing 1.5 per cent, while retail sales excluding autos only rose 0.2 per cent.
When looking a core retail sales, which exclude gasoline and car dealers, sales declined 0.3 per cent in September, as sales shrunk in sporting goods and alcohol hint at a decline in discretionary spending.
For Alexander, the core retail numbers show some weakness in the economy.
“That does take some of the shine off the number,” he said. “When you think about the aggregate picture and the willingness of consumers to go out and spend, if the bulk of the sales are concentrated in one area like autos or things like gasoline and when you strip those away, if the underlying picture is weaker, then it gives you a better sense of how the consumer is behaving,”
Meanwhile, St-Arnaud said the sales numbers have him “very cautious” for the holiday shopping season.
“The underlying strength is not there, if we remove auto dealers and gasoline, we actually saw a decline in core retail sales and that’s been like that – relatively weak – for some time,” he said.
In a statement, Katherine Judge, director and senior economist at CIBC Capital Markets, said the early October numbers likely won’t last.
“The advance estimate for October suggested a 0.8-per-cent increase in nominal sales, which would likely just represent a temporary reprieve, given the climb in the unemployment rate that's being seen, along with the impact of mortgage renewals at higher interest rates,” she said.
NOT ENOUGH TO IMPACT BANK OF CANADA
The headline numbers, while a surprise, shouldn’t change the Bank of Canada’s plans when it comes to fighting inflation, both economists said.
“A couple of good retail sales reports probably aren’t going to be enough to get the Bank of Canada to rethink its position on monetary policy,” Alexander said. “I still think the backdrop is that the Canadian economy is heading into much more modest growth, but you can’t take away from the strength of the headline numbers.”
St-Arnaud said the sales numbers show the Bank of Canada is likely done raising interest rates “for the foreseeable future.”
“There’s still some concern, there’s still broad inflationary pressures, but those are easing,” he said.
“The next six months might be actually the most important period for the outlook because the real question is how much the slowdown will affect the labour market.”
With files from Bloomberg News
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2023-11-24 16:45:44Z
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