Weekly Economic Watch - August 27, 2013‏

– In June, retail sales did worse than anticipated, falling 0.6% instead of the 0.4% expected by consensus. To add to the bad news, the prior month’s growth was revised down a tick to +1.8%. Sales were down in 8 of the 11 subsectors. Auto sales advanced a mere 0.2% after a series of strong gains. Excluding autos, however, sales sank 0.8%. Four of the 10 provinces saw sales regress, including Alberta (-0.6%), which was likely impacted by the Calgary floods. Year on year, though, Alberta continued to lead the nation with 7.7% sales growth. The June decline in Canadian retail sales was entirely due to volumes. In real terms, overall sales slid 1.2% for a first drop in four months. For Q2 on the whole, real retail sales grew at an annualized pace of 5.8% (thanks to healthy gains early in the quarter) after contracting 0.6% the prior quarter. That said, we expec consumption spending to moderate in the second half of the year as debt-laden Canadians should restrict their credit intake and save more. A softening labour market will not help retailers either.

Again in June, wholesale trade shrank 2.8%. To make matters worse, the prior month’s growth was revised down from +2.3% to +2.2%. All seven subsectors recorded lower sales, led by building materials and supplies (-3.0), motor vehicles and parts (-2.2), and machinery and equipment (-1.8%). The June decline was entirely due to volumes as wholesale trade sank 2.9% in real terms. That was the worst one-month pullback in volume terms since January 2009 when Canada was in recession. be negatively affected, contracting 0.3% on the month for a first monthly decline in output this year.

In July, Canada’s consumer price index increased 0.1% in July, causing the year-on-year inflation rate to accelerate to 1.3%, compared to 1.2% in June. In seasonally adjusted terms, CPI rose 0.2% month-overmonth, as four of the eight broad categories saw price increases. Price gains for household operations (+0.4%), recreation/reading (+0.3%), shelter (+0.2%) and health/personal care (+0.1%) more than offset the decline for food (-0.1%) and alcohol/tobacco (-0.3%). Prices for clothing/footwear and transportation were flat. The Bank of Canada core CPI, which excludes eight of the most volatile items was flat causing the year-on-year core
inflation rate to rise one tick to 1.4%. In seasonallyadjusted terms, core CPI rose 0.1%. On a 3-month annualized basis, it is running at a soft 1.3%, while the headline is at 2.3%.

Excluding food and energy, prices rose 0.1% month-over-month in seasonally-adjusted terms and the annual inflation rate remains very mild at just 1.1%. The annual services inflation rate rose two-ticks but remains mild at just 1.4%. Goods annual inflation rate rose to 1.3%, the highest since April 2012 but that is mostly due to surge in gasoline prices (+6.1%). The inflation figures were somewhat weaker than expected in July. The BoC core index is currently running at a tame annualized rate of 1.3% over the past three months but this measure includes electricity prices which have been quite volatile in recent months (up a whopping 12.1 at an annualized rate in the past three months). The current Bank of Canada forecast is calling for its core index to rise 1.3% in Q3 on a year-over-year basis. That seems sensible for an economy that will be struggling to grow at 2%.

To Read the Entire Report Please Click on the pdf File Below.