Rebounding Retail Sales Show Lower Interest Rates Are Working
A Four-Month Growth Streak Signals the Bank of Canada’s Interest-Rate Cuts are Boosting Consumer Spending
Canadian retail sales rose for the fourth consecutive month, marking the longest growth streak since early 2022. This trend indicates that the Bank of Canada’s interest-rate cuts are having a positive impact on consumer spending.
An Advanced Estimate Suggests Retail Receipts Jumped 0.7% in October
An advanced estimate from Statistics Canada reveals that retail receipts for retailers increased by 0.7% in October, which is the strongest pace since July. This growth follows a 0.4% gain in September and further supports the notion that interest-rate cuts are having a beneficial effect on consumer spending.
Rebound in Retail Sales
The recent rebound in retail sales suggests that lower interest rates are supporting consumer spending. The Statistics Canada data indicate that the Bank of Canada’s monetary policy measures are starting to have a positive impact on economic activities.
Interest-Rate Cuts Continue
The Bank of Canada has continued its pace of interest-rate cuts, with a 50 basis-point reduction in October. Although last month’s inflation re-acceleration lowers the odds of another jumbo cut in December, policymakers are expected to continue cutting gradually to make borrowing costs less restrictive.
Federal Government Stimulus Package Announced
In an effort to further fuel consumption in the fourth quarter and into next year, Prime Minister Justin Trudeau’s government has announced plans to waive federal goods and services taxes (GST) from items including prepared foods, some alcohol, books, and toys over the winter holidays. This stimulus package is expected to provide a boost for retail sales in December but may also lead to weakness later as consumers delay purchases.
Regional Performance
Regionally, sales were up in five of 10 provinces, with Alberta seeing the largest increase of 2.3%. This growth was led by higher receipts at car dealerships.
Economic Analysis
"This is early evidence that lower interest rates are supporting spending," said Katherine Judge, economist at Canadian Imperial Bank of Commerce. "However, per-capita retail sales volumes are still sitting 1.8% below year-ago levels as of September, showing that there is ample lost ground to make up."
Impact on Interest Rates
The upcoming GST holiday will provide a boost for retail sales in December but could also lead to weakness later as consumers delay purchases. Charles St-Arnaud, chief economist at Alberta Central, noted that the question remains how much of the increase due to the GST holiday will be just spending that is brought forward.
Regional Breakdown
Regionally, sales were up in five of 10 provinces, with Alberta seeing the largest increase of 2.3%. This growth was led by higher receipts at car dealerships.
Conclusion
The recent rebound in retail sales suggests that lower interest rates are supporting consumer spending. The Bank of Canada’s monetary policy measures are starting to have a positive impact on economic activities, and policymakers are expected to continue cutting gradually to make borrowing costs less restrictive. However, the impact of the stimulus package announced by the federal government remains to be seen.
References
- Statistics Canada. (2022). Retail Sales October 2022.
- Canadian Imperial Bank of Commerce. (2022). Economic Insights.
- Alberta Central. (2022). Economic Update.
