Retail sales slump as high interest rates weigh on shoppers

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Canadian consumers likely continued to tighten their belts in June after a sharp spending pullback in May, marking a weak first half of the year for retail sales in the country.

Receipts for retailers fell 0.3 per cent in June, according to an advance estimate from Statistics Canada released Friday. That followed a 0.8 per cent drop in May, below expectations for a 0.6 per cent drop in a Bloomberg survey.

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Taken together with April’s gain of 0.6 per cent — the only monthly increase in sales so far this year — the figures point to a decrease of 0.2 per cent in the second quarter, following a 0.4 per cent drop in the first three months of 2024.

The release will help bolster a case for the Bank of Canada to cut interest rates at a second straight meeting next Wednesday. The loonie fell nearly 0.2 per cent on the day to 72.8 U.S. cents, while traders put the odds of a July cut at more than 95 per cent.

Receipts fell in eight of nine subsectors in May, led by lower sales at hardware stores, food and beverage retailers and clothing sellers. The only retailers that saw sales rise were auto dealers, posting their third monthly gain in four months.

All in, the report shows consumers cutting back on discretionary purchases, which include furniture, electronics and sporting goods. The Bank of Canada cut its key policy rate to 4.75 per cent in June, but restrictive monetary policy continues to weigh on Canadians.

“Canadian consumer spending continues to struggle with the impact of past rate hikes and higher living costs,” Robert Kavcic, senior economist at Bank of Montreal, said in a report to investors. “And this runs counter to a robust/resilient US retail sales report from earlier this week.”

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The data is consistent with Statistics Canada’s initial estimate of below two per cent gross domestic product growth for the second quarter, Kavcic said. It also follows a Bank of Canada survey that pointed to businesses’ input and selling price growth slowing and a deceleration in headline inflation for June.

In volume terms, retail sales fell 0.7 per cent in May. Excluding autos, retail sales fell 1.3 per cent, significantly lower than the 0.5 per cent drop expected by economists.

Regionally, sales were down in nine provinces in February, with the largest declines in Alberta, led by lower car sales — bucking the national trend. British Columbia and its largest city of Vancouver also saw significant decreases. The sole province where retailing activity rose in May was Nova Scotia, driven by higher vehicle sales.

The statistics agency didn’t provide details on the June flash estimate, which was based on responses from 50.3 per cent of companies surveyed. The average final response rate to the survey over the previous 12 months was 90 per cent.

—With assistance from Jay Zhao-Murray.

Bloomberg.com

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