Canadian consumers splurged in September and October, a surprise resurgence in spending even as high interest rates restrict household budgets.
Receipts for retailers rose 0.8% last month, according to an advance estimate from Statistics Canada released Friday. That’s the biggest jump since April, and followed an unexpected 0.6% increase a month earlier, which far exceeded the median estimate of a flat reading in a Bloomberg survey of economists.
Sales were up in four of nine subsectors, led by gains at car and parts dealers, which were up 1.5% in September. Excluding autos, retail sales rose 0.2%, versus expectations for a decrease of 0.1%. In volume terms, retail sales grew 0.3%.
Canada bonds cheapened after the release, bringing yields on the two-year government bond up about four basis points to 4.473% at 8:50 a.m. Ottawa time. The loonie rose to $1.3660 per US dollar, up about 0.3% on the day.
Despite a sharp rebound in headline numbers, details in the report point to consumer weakness. Core retail sales, which exclude gas stations and car dealers, were down 0.3% in September. The decline was led by lower sales at sporting goods, hobby and musical instrument retailers as well as beer, wine and liquor stores, suggesting consumers cut back on some discretionary purchases.
The release is a “reprieve from the consistent softness in the Canadian economic data,” said Benjamin Reitzes, rates and macro strategist at Bank of Montreal, by email. “However, given elevated rates and mortgage resets still coming, don’t expect consumer spending to perk up consistently.”
With the economy already showing signs of stagnation, the Bank of Canada will probably look past what’s likely to be a temporary pick-up in demand, and hold borrowing costs at 5% while waiting for the softening economy to weigh heavier on spending. Accounting for record population growth, core retail sales are declining. Policymakers next set rates on December 6.
Earlier this week, Governor Tiff Macklem said interest rates may now be restrictive enough to return to price stability, and that more downward pressure on inflation is in the pipeline with the economy expected to remain weak for the next few quarters.
Read More: Bank of Canada Chief Says Rates May Be ‘Restrictive Enough’
Katherine Judge, an economist at the Canadian Imperial Bank of Commerce, said in a note to investors that the data “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.”
Regionally, sales increased in eight of 10 provinces in September. The country’s most populous province, Ontario saw the largest provincial increase, led by higher sales at car dealers, but sales were down 0.6% in Toronto, its largest city.
The agency didn’t provide details on the October estimate, which was based on responses from 48.7% of companies surveyed.
In a separate release, Statistics Canada said advance results showed manufacturing sales declined 2.7% in October, with the largest decreases in petroleum and coal product, machinery and transportation equipment subsectors.
--With assistance from Danielle Bochove.
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Author: Randy Thanthong-Knight
