MNI:Canada Sep Retail Stalls After Aug Has 1st Dip In 5 Months

Canadian retail sales fell for the first time in five months in August and a flash estimate shows they stalled in September, which may add to market bets the economy is slowing enough for the central bank to remain on hold again next week.

Receipts declined 0.1% in August according to Statistics Canada's report Friday from Ottawa, and after removing price changes the volume of sales declined 0.7%, also the worst result since March. The decline in headline sales was in line with the market consensus for a 0.2% decrease.

Excluding automobiles and gasoline the agency's "core" measure of sales fell 0.3%, the third decline in four months. That decline was led by a 1.2% decrease at food and beverage retailers and similar weakness in the sporting goods, hobby and musical instrument category. Motor vehicle and parts sales fell 0.9%, the second straight decline and an indication that pent-up demand is being taken care of after disruptions caused by a global microchip shortage.

The report also suggested consumer finances being strained by a record 30% jump in mortgage costs are being pinched again by higher gasoline prices, with sales at those outlets up about 3% in August while volumes declined by about the same magnitude. A separate StatsCan report Friday showed household debts climbing towards the CAD3 trillion mark, staying ahead of Canada's total GDP. That debt pile presents another danger to further hiking after the Bank moved 10 times from near-zero as the economy emerged from pandemic lockdowns, sideswiping families with variable-rate mortgages now so expensive they can no longer pay down any principal on those loans. 

The Bank of Canada was already expected by investors to hold interest rates at the highest since 2001 at 5% next Wednesday, with inflation slowing to 3.8%, GDP shrinking in the second quarter and unemployment rising about half a percentage point from a record low. Governor Tiff Macklem has continued to say he's prepared to hike again if he's not satisfied inflation is heading back to his 2% target, a goal officials say will take until mid-2025 to secure.

Weakness in consumer spending lines up with minutes from the Bank's last decision noting spending slowed in the second quarter after perhaps being boosted by temporary factors in the first quarter. One reason the Bank returned to hiking after signaling a pause earlier this year was the resilience of consumer spending, a trend most economists say is over. Households are also more worried now, with more than half of respondents seeing a recession coming according to a quarterly BOC survey published this week.