Retail sales in Canada
Friday’s Canadian retail sales report for September beat expectations by +0.6% compared to the flat reading expected. Additionally, the advance reading for October was +0.8% indicating more strength.
CIBC highlights the variation in consumer spending patterns in the report. While auto sales rose, there was a notable decline in discretionary spending in areas such as apparel, sporting goods and furniture. The latter may reflect the ongoing correction in home prices and a slowdown in home sales.
“The September edition suggests that overall GDP in that month will look slightly better than the advance estimate, at 0.1% m/m,” CIBC writes. “While the core sales group continues to indicate consumer wilting, strong auto sales may prevent another decline in commodity consumption in the fourth quarter.”
CIBC also notes that the October edition could have been affected by car sales, which rose partly due to delays in deliveries following the port strike.
Looking ahead, the risk here is that strong auto sales mask broader consumer weakness and delay Bank of Canada interest rate cuts beyond what is prudent. Ultimately, this could cause the housing market to stagnate in the spring and lead to a deeper decline.