Larger-than-expected drop in retail sales adds to economy's woes in June
The Eaton Centre in Toronto, Ont. (THE CANADIAN PRESS/Chris Young)
Published Thursday, August 22, 2013 8:58AM EDT
Last Updated Thursday, August 22, 2013 1:38PM EDT
OTTAWA, Ont. -- An unexpectedly steep drop in retail sales adds to expectations that June was the weakest month for the Canadian economy since the recession, further dampening hopes for next week's GDP report for the second quarter.
June's retail sales fell 0.6 per cent to $40.1 billion -- or 1.2 per cent in volume terms -- partly reversing the outsized 1.8 per cent surge of the previous month and a bigger drop than the 0.4 per cent decline that economists had forecast.
Combined with drops in manufacturing and wholesale trade reported earlier, analysts are now estimating the country's rate of economic growth slowed to about 1.5 per cent in the April-June quarter.
The second quarter GDP estimate includes a 0.6 per cent decline in gross domestic product in the month of June and compares with a first-quarter GDP growth rate of 2.5 per cent.
Analysts cannot be precise when predicting GDP because certain elements of the economy, such as mining activity, some services and construction, are not captured in the Statistics Canada monthly reports.
But barring any surprises, Statistics Canada's comprehensive report on gross domestic product should confirm that the quarter ended on a sour note in June, BMO chief economist Doug Porter said Thursday.
"Some of the numbers had been extra-ordinarily strong, but what June does show is the flashes of strength we saw in the economy in April and May were not a meaningful sign of strength and we're back to the same old drudgery of an economy just slogging along at a very modest pace," Porter said.
Unlike the earlier manufacturing and wholesale trade reports, the retail sales data released on Thursday does show some impact from June's twin shocks to the system -- the Alberta floods and a construction strike in Quebec.
Sales in Quebec, Canada's second most populous province, fell 1.3 per cent and slipped 0.6 per cent in Alberta, the only western province to record a decline.
But Ontario, the province with the highest population, remained the weak link, with sales falling 1.4 per cent in June -- although that came after a two-per-cent increase the previous month.
The retail sales numbers are unlikely to worry the Bank of Canada. It had forecast an even softer June, and second quarter, than most analysts are willing to concede.
The central bank predicts the weakness will be short-lived, with economic activity likely to be boosted by reconstruction in Alberta and pent-up demand following the Quebec construction strike.
The Bank of Canada is expecting the July-September period to be one of the best quarters in years, pushing annualized GDP growth to 3.8 per cent.
Following that sprint, the bank believes growth will settle in at a relatively healthy rate slightly above 2.5 per cent as the U.S. and global economies slowly gather momentum.
The Goldilocks economy -- not too hot, not too cold -- presumes that none of the considerable risks that could upset the applecart, including a housing correction and a new European financial crisis, will come to pass.
Despite June's hiccup, consumption has held firm in Canada and is up 5.7 per cent in the quarter annualized, analysts pointed out
"Today's retail report, disappointing as it may be, is no reason to start fretting over the Canadian consumer," said CIBC economist Emanuella Enenajor.
"In fact, of the eight sub-categories that posted declines in retailing, six of those sectors saw measurable gains in the prior month -- pointing to a see-sawing pattern, rather than a consistent trend of weakness."
One upward surprise in June was that motor vehicle sales held firm, up slightly at 0.2 per cent, following May's four per cent jump.
The big decreases in dollar terms came in food and beverage stores, down 1.2 per cent, building material outlets, down 1.9 per cent, and clothing shops, which slipped 1.8 per cent. As well, gas sales slid 0.2 per cent.