(Bloomberg) -- The Bank of Canada’s interest-rate cuts since June appear to have encouraged more Canadian consumers to spend in the third quarter.
Receipts for retailers rose 0.4% in September, the third consecutive monthly increase, according to an advance estimate from Statistics Canada released Friday. That followed a similar 0.4% gain in August, slightly missing expectations of 0.5% in a Bloomberg survey of economists.
While consumer spending in these two months was softer than July’s 0.9% jump, retail sales in the third quarter are on track on grow at 0.8%, the strongest pace since the end of last year. That’s likely driven in part by the Bank of Canada’s three 25 basis-point cuts between June and September.
The central bank further reduced borrowing costs by half a percentage point this week to boost economic growth and spending, which has been weak despite the country’s high population growth driven by strong immigration.
August’s growth was largely led by higher sales at motor vehicle and parts dealers, contributing almost a full percentage point to monthly growth that was offset by decreases elsewhere. Clothing and sporting goods retailers posted small increases. In volume terms, retail sales jumped 0.7% in August.
Economists had expected a broader-based rise in retail sales, with a median forecast for a 0.4% increase in sales excluding autos — suggesting that other categories aside from cars would drive most of the sales growth that month. Instead, receipts excluding autos fell 0.7%, with decreases in five of nine subsectors.
Core retail sales, which exclude gas stations as well as car dealers, were down 0.4%.
“Today’s report suggests that consumer spending remains patchy, and that further reductions in interest rates will likely be needed to bring a sustained acceleration,” Andrew Grantham, economist at the Canadian Imperial Bank of Commerce, said in a report to investors.
The mixed report shows that consumers remain cautious, Charles St-Arnaud, chief economist at Alberta Central, said in an email.
“There is not much here that would change our or the Bank of Canada’s view of the economy,” he said.
“With most of the increase being driven by population growth, the new immigration targets add some significant uncertainty to the outlook for consumer spending for the coming years. We continue to think the Bank of Canada should cut its policy rate by 50 basis points in December.”
Canada’s population has surged since the pandemic, adding more than two million people in the last two years. Prime Minister Justin Trudeau announced a plan on Thursday to halt population growth in 2025 and 2026, which is likely to dampen the growth in consumer demand.
Regionally, sales rose in seven of ten provinces in August, with the largest growth seen in Ontario, led by higher car sales. Receipts were also up in Toronto and Montreal, the country’s two largest cities.
The statistics agency didn’t provide details on the September estimate, which was based on responses from 61.1% of companies surveyed. The average final response rate for the survey over the previous 12 months was 89.1%.
--With assistance from Jay Zhao-Murray.
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