Canada’s retail sector staged a modest comeback in August, with sales rising 1.0% to $70.4 billion—matching consensus forecasts and Statistics Canada’s flash estimate.
The uptick, led by a 1.8% gain in motor vehicle and parts dealers and a 3.2% surge in clothing and accessories, offered some relief after July’s contraction.
Core retail sales, which strip out autos and gas, advanced 1.1%, buoyed by general merchandise (+2.4%) and clothing retailers.
Retail sales volumes also climbed 1.0% in August, suggesting real gross domestic product (GDP) growth will align with StatCan’s preliminary estimate of flat output for the month.
Provincial trends were mixed, with five provinces reporting higher sales. Ontario led with a 1.2% gain, driven by vehicle sales, while Quebec posted its third consecutive monthly rise at 1.8%. Newfoundland & Labrador rebounded 5.1% after wildfire-related weakness in July.
E-commerce sales edged up 0.1% to $4.3 billion, holding steady at 6.1% of total retail trade.
Despite the August rebound, economists cautioned that the underlying picture remains soft.
“The 1.0% increase in headline sales during August was in line with consensus expectations and the advance estimate, although largely just made up for a 0.7% decline in the prior month,” said Andrew Grantham, senior economist at CIBC Capital Markets.
“Auto sales contributed to the August advance, although that was offset by a decline in the other often volatile segment of gasoline stations.”
However, the momentum appears short-lived. StatCan’s advance estimate for September points to a 0.7% drop in retail sales, which could look even weaker in volume terms as goods prices ticked higher.
“Despite a decent August report, the disappointing September flash highlights the underlying weakness in Canadian retail spending,” said Shelly Kaushik, senior economist at Bank of Montreal.
“Net risks remain to the downside given ongoing trade uncertainty, keeping the Bank of Canada on its dovish path. We continue to believe that the Bank isn’t done easing just yet.”
Grantham also noted that retail sales volumes have barely changed since December, reflecting weak consumer confidence due to United States tariff uncertainty and a softer job market, “and justifying a further interest rate cut from the Bank of Canada next week.”
Research from Capital Economics estimated retail sales volumes are tracking just 0.4% annualized growth in Q3, consistent with a slowdown in consumption growth to about 1.5% from 4.5% a quarter earlier.
“The solid rebound in retail sales in August will not do much to spare the economy from a sharp slowdown in consumption growth in the third quarter given the similar-sized fall in sales expected in September,” said Bradley Saunders, North America economist at Capital Economics.
Bank of Canada governor Tiff Macklem last week reiterated that economic growth in the back half of 2025 would likely be soft, with consumer spending set to cool further.
Money markets are now pricing in an 87% chance of a 25-basis-point rate cut at the BoC’s next meeting.
CMP
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