Canadian retail sales came in weaker than expected for July – posting an unexpected decline of 0.3% in July. But economists aren’t worried.

It’s important not to get too wrapped up in one month’s results, says BMO. “The retail sales data move around erratically, and while the headline figure did drop unexpectedly, remember that June racked up a huge increase, and the year-over-year pace remains very solid at +6.5%. Given the recent strong gains in employment, there is no reason to expect the drop in retail sales to be anymore more than a one-month blip.”

TD Bank concurs with that assessment. “Despite July’s disappointing sales, strong employment gains, healthy increases in disposable income and low financing costs are still supporting robust consumer activity. Indeed, today’s modest decline in retail sales does nothing to change our view that overall consumer spending will record an annualized gain of 3.3% in the third quarter, after removing the impact of inflation.”

Although retailing will be a negative, says CIBC World Markets, July GDP should still manage a reasonable 0.3% advance, built on earlier reported growth in manufacturing and wholesaling, and a weather-related spike at power utilities. “All of this is only a so-so start to Q3, given the lack of momentum from May and June’s matching 0.1% monthly GDP growth rates, and is
consistent with our call for Q3 GDP to slow to just over a 3% pace.”

TD says the macroeconomic backdrop still points to a 25 basis point hike by the Bank of Canada when it meets on Oct. 16.