By Robb M. Stewart

  OTTAWA--A recovery in Canadian spending in the last quarter appears to have continued into October, with retail sales rising for a fourth straight month as price pressures eased and borrowing costs fell. 

  An advance estimate of retail receipts showed sales rose 0.7 per cent last month, following an expected 0.4 per cent increase in September sales from the previous month, Statistics Canada said on Friday. 

  The flash estimate for October, which marks the strongest pace for retail trade since July, suggests a solid start to the final quarter of the year. The increase in September left third-quarter sales up 0.9 percent, following contractions in the past two quarters. 

  Central bank officials are looking for an increase in household spending to help revive a weak Canadian economy and avoid the risk of inflation getting stuck at too low levels. In October, the Bank of Canada cut its policy rate by half a percentage point, building on three successive quarter-point moves. 

  Expectations remain high that policymakers will continue to cut still-high interest rates next year, now that annual inflation is back around the central bank's 2% target and with employment falling and unemployment steadily rising. The prospect of further cuts, along with government stimulus measures, has economists expecting a steady but sustained recovery in consumer spending in the coming months. 

  Retail sales volume rose 0.8% in September from the previous month, similar to the previous month's pace, and turned into annual volume growth of about 5% in the third quarter. The estimate for October indicates that sales volumes increased again heading into the holidays. 

  The last time Canada saw annual growth of more than 5 per cent in sales volumes was almost a decade ago, said Scotiabank economist Derek Holt. "This fits my narrative that there is too much negativity towards the Canadian consumer," said Holt, who also suggests caution about boosting consumption with government stimulus and rate cuts. 

  Statistics Canada did not elaborate on the October estimate, which was based on responses from about 59% of retailers surveyed and will be revised. 

  Consumer spending tracking by the Royal Bank of Canada, one of the country's biggest lenders, indicated Canadians spent more in October, although activity remains weak overall. The bank's analysis of anonymous card transactions showed an increase in discretionary spending on goods, with an increase in spending on furniture and home decor and an increase in spending on car maintenance and repairs and at hotels and restaurants. 

  For September, Statistics Canada data shows retail sales rose in six of the nine industry segments it tracks, led by increased spending at grocery stores and on beer, wine and spirits. Auto sales, which drove growth in August, fell in September. 

  Canadian households as a whole are at record savings levels, but after a post-pandemic spike in interest rates, loan delinquency rates have risen and demand for services like food banks has increased. Even after lowering rates to date, a large number of homeowners are faced with renewing their mortgages at higher rates at a time when unemployment is rising. 

  Katherine Judge, senior economist at CIBC Capital Markets, said it was too early to break out the champagne for retailers. The rebound in the third quarter follows falling sales volumes in the first half of the year, and after several years of strong immigration-driven population growth, monthly retail sales volumes per person remain below last year's levels, she said. 

  Retail receipts for September showed that in addition to spending on food and drink, Canadians also spent more at hardware and garden equipment dealers. 

  However, sales of clothing, accessories, footwear and leather goods declined. Sales at gas stations and other fuel retailers fell for the fifth consecutive month, although sales rose in volume terms. 

  Excluding auto and auto parts dealers and gas stations, core retail sales for September rose 1.4 percent month-on-month and were 1.9 percent above the same month last year. 

  "Recent improvements in consumer confidence suggest this strength will continue for the rest of the year," said Thomas Ryan, economist at Capital Economics. 

  Justin Trudeau's government this week unveiled plans for a two-month break in the goods and services tax applied to restaurant meals and certain other items, as well as a 250 Canadian dollar rebate, about $179, for people who earn less than 150,000 Canadian dollars. year. The government of Ontario, the most populous province, has promised a similar cash transfer. 

  That boost to households, stretched in recent years by rising cost of living means the outlook for retail sales early next year is also good, Ryan said. 

  Write to Robb M. Stewart at [email protected] 

  (End) Dow Jones Newswires

  November 22, 2024 11:39 AM ET (16:39 GMT)
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