RBC’s cardholder data for August shows core retail sales growth slowed from July—marking the third consecutive monthly slowdown in growth based on a three-month moving average, says Rachel Battaglia an economist at RBC.
Core retail sales—which excludes spending on autos and gas—grew 0.4% seasonally adjusted from July, when it rose 1.1%.
“This trend aligns with our broader economic outlook . We believe Canada’s economy will resume slow, but positive, GDP growth after a Q2 decline with relatively resilient consumer spending offsetting persistent headwinds in the industrial sector,” she wrote recently in a report.
“Solid consumer spending in July hit a bump in August. Total spending was down 2.2% m/m from July, reversing the previous month’s gain. Monthly spending data is always volatile, but the three-month moving average also grew more slowly for a third month.
“The ongoing contraction in gasoline spending—continuing on a three-month average basis since the elimination of the consumer carbon tax this spring—has been a significant driver of this trend.
“Still, most major spending categories saw growth—but slower—apart from clothing purchases, which accelerated. Travel spending dipped 0.1% seasonally adjusted on a three-month average.”
Battaglia said essential spending has shown a more persistent moderation compared to discretionary categories.
“This pattern is largely attributable to the drop in spending at gas stations—which is deemed essential—after the removal of the consumer carbon tax this spring. Spending on groceries has also flatlined since May, which is contributing to lower essentials spending as well,” she said.
“On a seasonally adjusted, three-month moving average basis, essentials spending contracted 0.6% m/m while other spending categories maintained positive growth.”
Consumer confidence measures were little changed from July. The Conference Board of Canada’s Index of Consumer Confidence contracted marginally after four consecutive months of improvement—and remains substantially lower from a year ago, she said.
The Bank of Canada’s Canadian Survey of Consumer Expectations mirrored the same pessimism among survey respondents regarding their spending intentions, and overall financial health. Consumers highlighted elevated job loss concerns were contributing to pessimism, added Battaglia.
“Despite the pessimistic indicators, consumer spending has remained more resilient than indicators would suggest—continuing to provide underlying support for the economy, even as other sectors face challenges,” she said.
“Meanwhile, the recent cooling in population growth—after years of record increases that bolstered aggregate consumer spending—likely contributes to the current spending moderation, creating an additional headwind for retail sales beyond weak consumer confidence.”
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