July boost in Canadian retail sales welcome, but more rate cuts needed: analysts

Canadian retail sales edged up in July, but economists say it will take further interest rate cuts tospark lasting activity.

Statistics Canada said Friday that retail sales rose 0.9 per cent, to $66.4 billion, in July, helped by stronger new car sales.

The agency says sales were higher in seven of the nine subsectors it tracks, with sales at motor vehicle and parts dealers up 2.2 per cent, boosted by a 2.3 per cent increase in sales at new car dealers.

"It's rare to see a positive surprise from Canadian consumers these days, but the July retail sales report delivered," said Shelly Kaushik, an economist with BMO Capital Markets, in a note to investors.

The period the figures covered was largely marked by people anticipating and then delighting in the Bank of Canada's decision to cut its key interest rate in July. The central bank cut rates again in September to 4.25 per cent.

The rate has weighed on shoppers, particularly those looking to make big purchases or take out mortgages, but as it's been dropping, it's delivered some relief to wallets.

This was reflected in core retail sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers. They rose 0.6 per cent in July.

Sales at food and beverage retailers increased because of a 1.2 per cent jump in sales at supermarkets and other grocery retailers, a 2.1 per cent climb at specialty food retailers and 0.4 per cent rise at convenience retailers and vending machine operators.

Higher sales were also reported at health and personal care retailers in July.

In volume terms, Statistics Canada said retail sales across the month increased one per cent.

However, sales at gasoline stations and fuel vendors fell 0.6 per cent for the month, as sales for the subsector in volume terms fell 1.7 per cent.

Looking forward, Statistics Canada said its preliminary estimate for retail sales in August pointed to a gain of 0.5 per cent for the month, though it cautioned the figure will be revised.

"As we've stressed many times before, spending growth pales in comparison to the population surge," Kaushik said. "Consumers will need to see more rate cuts filter through the economy to see a more meaningful recovery."

TD Bank economist Maria Solovieva also detected the same downward trend in retail spending.

"A good start to the quarter is unlikely to sway the odds decisively on whether the Bank of Canada will cut rates by 50 basis points in October," she told investors in a note.