Retail sales have heated up, for now

Retail sales rose by 2.1 per cent month-over-month (m/m) in August, after posting a 0.1 per cent contraction in July. In volume terms, sales increased by 1.4 per cent.
Looking ahead, Statistics Canada’s flash estimate for September’s retail sales suggests that sales decreased by 1.9 per cent. However, this preliminary estimate is based on responses from 54 per cent of the surveyed companies, so this figure will likely change.
Retail sales were up in all ten provinces. Ontario (+2.6 per cent) and Quebec (+2.6 per cent) experienced the sharpest increase. Meanwhile, sales in Alberta (+0.4 per cent) posted the most modest increase of all provinces.
Sales at gasoline stations rose by 3.8 per cent due, in part, to higher gas prices. Meanwhile, sales at motor vehicle and parts dealers were unchanged.
Core sales (excluding gasoline and motor vehicles) increased by 2.7 per cent. Food and beverage stores (+4.8 per cent) witnessed the largest increase, while clothing stores (+3.9 per cent) also showed a sizable gain.

Key insights:

This morning’s release is particularly encouraging for two key reasons. First, retailers are doing well despite facing more tough competition from leisure activities (such as travel and in-person dining) following the loosening of public health restrictions. Second, retail sales grew at a healthy clip despite ongoing supply chain issues, which have hurt the availability of many consumer goods.
The increase in August was due, in part, to inflation, which was at an 18-year high during the month. In volume terms, sales posted a comparatively modest increase. Still, record high savings from the pandemic and a recovering labour market encouraged consumers to open their wallets despite surging prices.
Looking ahead, consumer spending will be a key driver for the Canadian economy. However, inflationary pressures pose a risk to our outlook. As the pandemic-related stimulus fades, the level of savings in the economy will dissipate. As a result, consumers may be less willing to accept rising prices than during the summer months. Plus, the ongoing supply chain disruptions are not going away any time soon. They will continue to weigh on the availability of goods. These factors could put downward pressure on consumer spending and overall economic growth in the final quarter of 2021.