Gain in Canadian Nominal Retail Sales Muted
Gain in Canadian Nominal Retail Sales Muted
Nominal retail sales rose 0.1% in July compared to market expectations of a 0.3% gain. Disappointment with the minimal gain was tempered somewhat by a slight upward revision to sales growth in June to 0.6% from a previously estimated 0.5%. In contrast to past months, rising prices played a negligible role in the overall gain with the volume of retail sales unchanged in the month compared to a decline of 0.3% in June.
A 0.9% drop in new car sales in July was partly to blame for limiting the rise in overall retail sales to only 0.1%. Excluding autos, retail sales rose a stronger 0.4%. In contrast to previous months, none of this strength was the result of rising gasoline prices boosting service station sales - this component rose only 0.1% compared to monthly gains of 4% and 2.6% in June and May, respectively. The July gain in the ex auto component reflected strength in a number of components, including sales at furniture and electronic stores (+1.8%), building and outdoor home supplies stores (+1.2%) and pharmacies (+1%). The main offset occurred in a 0.4% decline in sales at clothing stores.
The fact that the volume of retail sales was unchanged is somewhat disappointing, but is an improvement from the 0.3% decline recorded in June. With the earlier-reported 2% surge in real manufacturing shipments for July following a 0.4% rise in June, this recent data augurs well for overall GDP growth in the month to strengthen to a 0.2% gain compared to a 0.1% rise in June and a 0.1% drop in May.
This upward trend is expected to send third-quarter GDP growth higher after a disappointing first half when GDP growth declined an annualized 0.8% in the first quarter and rose a minimal 0.3% in Q2. Currently, we are tracking real growth in the third quarter of 2.5%, although this assumes continued monthly gains in the near-term.
Beyond the third quarter, the pace of activity will increasingly be a function of the extent of pressures from financial markets and the cost of capital in both Canada and the United States. Policymakers in Canada will be watching very closely to assess whether aggressive actions taken by the U.S. administration and the Fed during this past weekend will be successful in easing these pressures. However, with the risks to growth solidly on the downside, it will likely result in Bank of Canada policy maintaining a still-accommodative 3.00% overnight rate in the near-term.
U.S. economic data highlights this week
This week’s data highlights include existing home sales for August on Wednesday, durable good orders and new home sales for August on Thursday, and the final read on second-quarter GDP on Friday.
We are not expecting any change in annualized second-quarter growth in the final estimate compared to the preliminary tally of 3.3%. Although the June trade deficit was revised down in the earlier-released trade report, it is expected to be offset by marginally stronger business investment.
RBC Financial Group
http://www.rbc.com
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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