Canadian shoppers spent more in August, and an early estimate points to another gain in September. This was according to Canada’s retail sales report that was released by Statistics Canada (StatsCan). The data suggest household spending held up well in the third quarter, despite waning consumer confidence and fresh trade tensions with the US. However, comments from several US officials and outside reports over the last few days indicated that Canada and the US have re-engaged in trade talks, which appear to be progressing.

• Canadian retail sales rose by 1.2% to $74.6 billion in August, which followed a 0.8% decline in July. Sales were broad-based, driven by motor vehicle and parts dealers. Gasoline station sales rose by 1.7% in dollar terms but fell by 0.5% in volume terms, suggesting higher prices at the gas pump.
• Everyday spending improved. Core retail sales, which exclude gasoline stations and motor vehicle dealers, rose by 1.1%. Sales at food and beverage retailers and general merchandise retailers both increased in August, recovering from July declines.
• Early September data are encouraging. StatsCan's advance estimate points to a 0.7% gain in September, although it is based on partial responses and may be revised.
• The Bank of Canada (BoC) interest rate decision comes on Wednesday. Resilient spending makes interest rate hikes easier to justify. As of October 26, economists surveyed by Bloomberg expect the BoC to hold steady at this meeting.
• The BoC is keenly monitoring developments in trade. The White House Economic Advisor said the two sides are progressing and continue to talk trade. On Friday, the US removed tariffs on some Canadian products.

Steady consumer spending is helping the Canadian economy hold up, but economic growth is expected to cool by year-end. A trade deal with the US may remove some uncertainty about Canada’s economy. The BoC will have a lot to consider at Wednesday’s decision.

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