Canadian: June Retail Sales a Gas, Gas, Gas

Daily Forex Fundamentals | Written by TD Bank Financial Group | Aug 20 08 15:43 GMT |

* Soaring gasoline prices send nominal retail sales up 0.5% in June
* Holding prices constant, retail sales fell by 0.4%.

As expected, nominal retail sales rose by 0.5% in June. However, it wasn't that Canadians were buying a lot more things in the month; instead we were paying more for what we bought - especially to fill up our vehicles. Excluding the impact of rising prices, retail sales fell in June by 0.4%.

Rising gas prices pushed up sales at gas stations a whopping 4.2%. Sales at food and beverage stores were also up 1.3%, but this was also thanks to rising prices. For the last several months, there have been two opposite forces operating in the Canadian auto sector. The more Canadians have to spend to fill up their cars, the less they are spending on new ones. Sales at new car dealerships continued to plummet in June, falling by 3.1%. To some extent the drop in receipts from new car dealers is also a price story as dealerships continued to lower sticker prices to draw in customers. Taking out food and autos (including gas and new and used car dealers), retail sales were up 0.6%, led by a rebound in sales at clothing and accessories stores, which rose 2.5% after a slight decline in May.

Retail sales increased in all provinces across the country in June. Saskatchewan continues to lead the provinces in year-over-year growth - up 13.5% and in sharp contrast with its neighbour to the west, Alberta, which is up only 0.2%. After strong spending growth in 2007, the western-most provinces of Alberta and British Columbia are set to underperform the rest of Canada in 2008, while Saskatchewan is expected to maintain its lead through the remainder of this year.

Going into the second half of this year, the gasoline price story that so characterized the rise in retail sales for much of the first half, is unlikely to continue. Instead, expect to see a gradual moderation in both the nominal retail sales and a continuation of the moderation in real spending levels. While spending on home furnishings and other household durables was resilient in June, the housing market is now showing clear signs of slowing and this will feed through to spending on household items. Moreover, the fall in employment in July gives little reason to expect a rebound in retail sales in the months ahead. All told, slower income and employment growth should be expected to lead to a slower pace of retail sales and real consumer spending over the remainder of 2008.

TD Bank Financial Group

The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.