Canadian consumers splurged in September and October, a surprise resurgence in spending even as high interest rates restrict household budgets.

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Canadians splurge in September and October, lifting retail sales Back to video

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Play Video

Receipts for retailers rose 0.8 per cent last month, according to an advance estimate from Statistics Canada released Nov. 24. That’s the biggest jump since April, and followed an unexpected 0.6 per cent 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 per cent in September. Excluding autos, retail sales rose 0.2 per cent, versus expectations for a decrease of 0.1 per cent. In volume terms, retail sales grew 0.3 per cent.

Canadian government bonds cheapened after the release, with yields on two-year debt rising as much as 5 basis points. The loonie has strengthened 0.7 per cent on the day, the most in more than a week.

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 per cent 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 pickup in demand, and hold borrowing costs at five per cent 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.

Taking the latest retail data into account, forecasts suggest little to no real gross domestic product growth in the third quarter and only a modest pickup in the fourth, Tiago Figueiredo, a macro strategist at Desjardins Securities, said in a report to investors. “Given the surge in population growth, these are hardly inspiring GDP forecasts. As a result, we continue to believe the Bank of Canada is done raising rates and that the economy could slip into recession in early 2024.”

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 per cent in Toronto, its largest city.

The agency didn’t provide details on the October estimate, which was based on responses from 48.7 per cent of companies surveyed.

In a separate release, Statistics Canada said advance results showed manufacturing sales declined 2.7 per cent in October, with the largest decreases in petroleum and coal product, machinery and transportation equipment subsectors.

— With assistance from Danielle Bochove.

Bloomberg.com