CIBC Private Wealth
July 23, 2024
Money Financial literacy Economy Professionals Commentary NewsMorning Market Brief
Canadian spending remained muted in May ahead of the Bank of Canada’s (BoC) rate cut, data from Statistics Canada (StatsCan) showed. Last Friday, StatsCan released Canada’s retail sales for May, along with its estimate for June, showing both dropped on a month-over-month basis. Clearly, many Canadian households are struggling amid tight financial conditions, weighing on overall economic growth.
- Retail sales in Canada fell by 0.8% in May over the previous month, their largest decline since early 2023. A survey of economists by Bloomberg estimated a 0.6% decline in May. This was the fourth decline across the first five months of 2024.
- May’s decline was driven by a sharp fall in sales for clothing, food and building materials. Conversely, sales rose for automobiles and parts at both new- and used-car dealerships.
- Looking ahead, StatsCan estimates that retail sales declined by 0.3% in June. At the beginning of June, the BoC lowered its benchmark overnight interest rate by 25 basis points to 4.75%. The BoC has seen the negative impact of elevated inflation and high borrowing costs on Canadian households in 2024. The BoC hopes that rate cuts will help stimulate consumer activity, thus boosting growth.
- The Bloomberg Nanos Canadian Confidence Index showed consumer optimism waned over the week ended July 19. Canadians expressed their concern about the economy, the labour market and their own personal financial situation with interest rates still relatively high.
The BoC holds its next interest-rate announcement tomorrow. There is quite a bit of uncertainty from markets on whether the BoC will cut rates again at this meeting or hold off until September. Canadian households seem to be feeling the pinch. Should spending continue to be soft, Canada’s economy could moderate further. The BoC might see the need to pull interest rates down further to help ease the pressure on households.
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