The retail trade sector decreased 1.0% in July, largely offsetting June’s increase, reflecting contractions in all comprising subsectors except building material and garden equipment and supplies dealers, according to Statistics Canada’s report on the nation’s GDP which was released on Tuesday.
“Retailing activity at gasoline stations and fuel vendors (-3.5%) contracted in July, offsetting most of the increase recorded in the previous month and coinciding with rapidly rising gasoline prices during the peak travel season. Similarly, lower activity at general merchandise retailers (-2.2%) further contributed to the decline in July after being among the largest contributors to growth in June,” explained the federal agency.
“Sporting goods, hobby, musical instrument, book, and miscellaneous retailers (-1.8%) and motor vehicle and parts dealers (-0.6%) further contributed to the sector’s contraction in July.”
Statistics Canada said real gross domestic product (GDP) nationally was essentially unchanged in July.
The goods-producing industries grouping was essentially unchanged in July as increases in construction and utilities were offset by declines in the other sectors comprising the aggregate. The services-producing industries aggregate was essentially flat, as increases across several sectors were offset by declines in retail trade and wholesale trade. Overall, 10 of 20 industrial sectors expanded in July, it said.
Advance information indicates that real GDP increased 0.2% in August, added StatsCan.
Canadian economic growth appears to be cooling in Q3 following a strong second quarter,” said Andrew Grantham, Senior Economist with CIBC Capital Markets.
“Activity was flat in July, with that result in line with the advance estimate albeit coming off the heels of a stronger than initially reported 0.4% gain in the prior month. Manufacturing, mining, oil & gas and retail weighed on growth during July, countering a surge in construction activity. The advance estimate for August pointed to growth of 0.2%, which leaves Q3 as a whole tracking around a 2.0% annualized pace,” he said.
“While that’s a deceleration compared to the strength seen in Q2, it would still be enough, if maintained, to gradually reduce slack within the economy. However, given the escalation of US trade uncertainty towards the end of August, today’s data will likely be viewed as old news, with even the advance estimate mostly covering a period of time before new tariffs came into effect. Because of that, we suspect that upcoming employment and CPI data will be more important heading into the late October rate decision, as well as the Bank’s own Business Outlook Survey.”
Canada’s economic activity sputtered at the start of the second half of the year, said Marc Ercolao, Economist at TD Economics.
“It is still early in the quarter, but given the advanced guidance, Q3 real GDP growth is tracking a solid 2% annualized–consistent with our expectation for a moderation in growth following a robust second quarter rebound. Renewed U.S.–Canada trade frictions and higher energy costs weigh will continue to weigh on household and business activity over the near-term,” he said.
“This report alone is unlikely to materially alter the Bank of Canada’s outlook. Markets have recently turned more hawkish as persistent energy pressures raise the risk that inflation broadens, while higher U.S. policy rates and the spillover from rising global bond yields add to the tightening in Canadian financial conditions. Still, we think uneven domestic growth, a labour market that remains in recovery mode, and elevated uncertainty gives the Bank cover to remain on the sidelines for now.”
Benjamin Reitzes, Managing Director, Canadian Rates & Macro Strategist at BMO Capital Markets, said the Canadian economy continues to hang in there despite the ongoing trade headwinds.
“This report puts Q3 GDP growth in line or slightly better than the BoC’s forecast. However, the new round of tariffs creates some questions for the outlook, but the Productivity Mega Deduction should provide a firm tailwind for Q4. There’s nothing here to heavily skew the balance of risks for the October policy meeting, with CPI, energy prices and the Business Outlook Survey likely the key inputs for policymakers,” he said.
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