The retail trade sector rose 1.2% in August, more than offsetting the contraction in July, as most subsectors expanded, reported Statistics Canada on Friday as it released data on the country real domestic product (GDP) in August.
“A rebound in motor vehicle and parts dealers (+1.8%) led the increase in August, driven by higher sales at new car dealers and more than offsetting the decline in July. Food and beverage retailers (+1.3%) also rebounded in August on widespread increases across all store types and more than offset the back-to-back monthly declines in June and July. Rebounds in general merchandise retailers (+1.5%) and health and personal care retailers (+1.3%) further contributed to the increase in August,” said the federal agency.
“Lower activity at gasoline stations and fuel vendors (-0.6%) tempered growth in the sector in August.”
Second month where GDP essentially unchanged
Statistics Canada said GDP in Canada overall was essentially unchanged in August. Of the 20 industrial sectors, nine expanded. This was the second consecutive month where real GDP was essentially unchanged, it noted.
“The services-producing industries aggregate edged down 0.1% in August, as decreases in the wholesale trade and public administration sectors were partially offset by increases in retail trade. The goods-producing industries grouping edged up 0.1%, as expansions in manufacturing and construction more than offset the decline in utilities,” added Statistics Canada.
Wholesale trade decline
Wholesale trade declined 1.4% in August on widespread contractions across most subsectors, said the report.
“Motor vehicle and motor vehicle parts and accessories wholesalers (-4.4%) contracted in August for the first time in seven months. The contraction of this subsector coincided with lower imports of passenger cars and light trucks as well as weaker than usual motor vehicle manufacturing activity in August,” said Statistics Canada.
“Building material and supplies wholesalers (+0.5%) tempered the decline in August, rising on strengths in the lumber, millwork, hardware and other building supplies industry group. This was the third consecutive monthly increase for building material and supplies wholesalers”.
The report said advance information indicates that real GDP decreased 0.1% in September. Decreases in manufacturing and mining, quarrying and oil and gas extraction were partially offset by increases in utilities and wholesale trade. With this advance estimate for September, information on real GDP by industry suggests that the economy expanded 0.3% in the third quarter of 2026, said the report.
Economists’ reaction
Doug Porter, Managing Director, Chief Economist, BMO Capital Markets, said: “The soggy readings on August and September growth—both of which look to have printed small negatives—combined with a flat result in July, suddenly leaves the three-month trend floundering at around zero. So much for the momentum that appeared to be building during the spring months, and of which the Bank of Canada cited at length as evidence of the economy’s resilience. But just as we suspected that the Q2 strength was over-stated, this big cooldown may be somewhat overstated, especially since some of it is census-related. Still, with the trade tiff still flaring, housing struggling, and recent employment figures concerning, it certainly appears that growth has run into some pretty serious headwinds of late. We are clipping our estimate of Q3 growth half a point to 1.5%, and there’s not much reason to expect a pick-up from there in Q4. For the Bank of Canada, markets are leaning to better than 50-50 odds of a follow-up hike in December, but more soft signs like this will get those odds pulling back.”
Marc Ercolao, Economist, TD Economics, said: “This was a disappointing report relative to expectations and, more importantly, Statistics Canada’s guidance for September looks no better. Taken together, that leaves real GDP growth in the third quarter tracking around 1.3% annualized–still positive, but notably below the Bank of Canada’s recent projection.
“For the Bank of Canada, today’s report may cast a little more doubt around the durability of the recovery heading into 2027. The Bank’s latest outlook anticipates a meaningful strengthening in growth next year, but signs of softer momentum heading into Q4 raise the bar for that forecast, particularly with trade uncertainty and higher energy costs still clouding the outlook. While the Bank remains focused on upside inflation risks following this week’s rate hike, weaker underlying growth could complicate the case for further tightening in the near-term.”
Andrew Grantham, Senior Economist, CIBC Capital Markets, said: “Today’s data suggested that the Canadian economy was already struggling for momentum even before this week’s interest rate hike. August GDP was flat on the month, which was weaker than the advance estimate and consensus forecast (+0.2%). Retail sales and manufacturing both grew, although the latter may have been partly flattered by efforts to front-run new US tariffs that hit toward month-end. Public administration weighed on GDP, as work on the 2026 census wound down, and wholesaling was also a negative. The advance estimate for September pointed to a 0.1% decline in GDP, linked to weakness in manufacturing and mining, oil & gas. For Q3 as a whole, today’s data suggests growth of 1.3% annualized, which is below the 2% forecast from the Bank of Canada in this week’s MPR. Moreover, even though the Bank had already expected GDP growth to dip below 1% in Q4, today’s figures suggest that momentum heading into that quarter may have been even weaker than anticipated. Admittedly there’s plenty more data to be released between now and the December meeting, including the full Q3 GDP by expenditure, but today’s release is supportive of the Bank holding fire for now on a further interest rate hike.”
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