Proactive Investors - Canadian consumers surprised economists with a significant surge in spending during September and October, despite facing the constraints of elevated interest rates impacting household budgets.
According to an advance estimate from Statistics Canada released on Friday, retail receipts saw an 0.8% increase last month, the largest jump since April.
This followed an unexpected 0.6% rise in October, surpassing the median estimate of a flat reading in a Bloomberg survey.
Sales experienced an upswing in four of nine subsectors, notably led by gains at car and parts dealers, which saw a 1.5% increase in September. Even excluding auto sales, retail sales defied expectations of a 0.1% decrease, rising by 0.2%.
However, the report highlights underlying consumer weakness, with core retail sales (excluding gas stations and car dealers) witnessing a 0.3% decline in September, signaling a cutback in discretionary spending.
Despite the apparent surge in demand, the Bank of Canada is expected to view this as a temporary phenomenon, maintaining the current interest rate of 5% while awaiting the softening economy to exert more significant pressure on spending. Governor Tiff Macklem anticipates downward pressure on inflation in the coming quarters due to the expected economic weakness.
Regionally, sales increased in eight of ten provinces in September, with Ontario experiencing the largest provincial upswing. However, sales in Toronto, the largest city, declined by 0.6%.
Statistics Canada also reported a 2.7% decline in manufacturing sales for October, with notable decreases in the petroleum and coal product, machinery, and transportation equipment subsectors.