Canadian consumers went into hibernation in July as the value of retail sales fell a stunning 0.6% from the previous month, defying all expectations of a strong pick-up.
The result appeared to fly in the face of other evidence that the Canadian economy is steadily picking up steam from a year-long slide and it left economists scratching their heads.
They had predicted a 0.7% increase in retail sales for the month of July, some believing it could even beat June’s full 1% advance.
“A horrible report. There’s no other way to put it other than we all [economists] have egg on our faces,” said Derek Holt, a senior analyst with Scotiabank.
“I honestly don’t know. It’s either the release of pent-up demand among consumers is over and done for, or poor weather, or it was a pause after a couple of months or strength, or it’s the lag effect of job losses catching up.”
Holt and other economists noted that the number was not as bad as it looked on the surface, given that the volume of sales only dropped 0.1%.
For example, July saw consumers buying 5.3% more autos than in June, but a large portion of those sales involved lower-prices vehicles. As well, the value of July’s sales were hammered by a 3.4% decline in prices at service stations, mostly lower prices for gasoline.
“July’s retail sales report was certainly disappointing, but falling prices made the headline look overly weak,” explained economist Benjamin Reitzes of BMO Capital Markets.
The weaker-than-expected sales results were not confined to merely autos and gas, however. Statistics Canada noted that sales dropped in five of eight categories, bringing the total value of retail sales down to $34.2 billion.
Food-and-beverage stores posted a 1.5% sales decline; furniture, home furnishings and electronics stores fell 0.6%; supermarket sales slid 1.6% and sales at beer, wine and liquor stores dipped 1.4%.
The largest increase was a 1.1% rise in sales at pharmacies and personal-care stores. As well, a 1% increase at building and outdoor home supplies stores more than offset a decrease in June.
Economists noted that despite July’s setback, sales have advanced in five of the last seven months and other components of growth were surprisingly positive in July, including manufacturing and wholesale trade.
The Royal Bank said in a research note that the performance of retail sales continues to point to a mild recovery by historical standards. However, it also shows that despite general improved conditions, there is still a need for the Bank of Canada to maintain a stimulative monetary stance.
