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Consumers appear to be ramping down their spending, according to the latest retail sales data, leading some economists to think the slowdown could act as a stay on more interest rate hikes from the Bank of Canada.
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'Surprised if Bank of Canada continued to raise rates': What economists are saying about retail sales – Financial Post
Slowdown could stay central bank’s hand
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Statistics Canada reported on July 21 that retail sales for May rose 0.2 per cent month over month, missing analysts estimates for an increase of 0.5 per cent. The national data agency also said it expected June retail sales to come in flat, a further indication of possible spending fatigue among consumers burdened by higher borrowing costs from rate increases.
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When the Bank of Canada hiked interest rates to five per cent at its policy announcement on July 12, it cited overactive consumers as one of the reasons behind its decision.
“While the bank expects consumer spending to slow in response to the cumulative increase in interest rates, recent retail trade and other data suggest more persistent excess demand in the economy,” the central bank said in its statement explaining the last increase.
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For economists, the signs of waning “excess demand” — weak data in May and June and a downgrade for April — are unmistakable.
“There are clear signs that consumer spending is stalling,” Charles St-Arnaud, chief economist at Alberta Central, said in a note from July 21. “The moderation in consumption is even more evident when adjusting for inflation and population growth.”
Here’s what economists are saying about the latest retail sales numbers and what they mean for the Bank of Canada and interest rates.
Stephen Brown, Capital Economics
“The latest preliminary estimate implies that retail sales values were unchanged in June which, given gasoline prices rebounded last month, implies that retail sales volumes fell again. While the continued disruption from wildfire smoke in June may explain some of that weakness, it still leaves retail sales looking weaker than the bank seems to have expected when it noted in its policy statement earlier this month that ‘recent retail trade … suggest more persistent excess demand in the economy.’ With the other data this week showing that headline CPI inflation also fell by more than expected in June, we would be surprised if the bank continued to raise interest rates at its next meeting in September.”
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Kyle Dahms and Matthieu Arseneau, National Bank of Canada
“The BoC was shaken by consumer strength in the first quarter, even considering population growth, which led the central bank to raise interest rates again. This renewed vigour appears to have been short-lived, if real per-capita retail sales are anything to go by, posting their worst performance in eight quarters and clearly on a downward trend since 2021. Moreover, the excess savings available for consumption may not be as high as some people think.”
Maria Solovieva, TD Economics
“May brought a sizable deceleration in retail spending growth. The only sector that points to a decisive gain is auto sales, where both nominal and unit sales were up. The rest of the categories are a mixed bag that points to consumers prioritizing spending on groceries at an expense of discretionary purchases. In real terms, second quarter real consumer spending is now tracking just slightly below one per cent quarter on quarter (annualized).
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“The ‘greater persistence of excess demand’ remains a challenge for the Bank of Canada. The bank expects that household consumption will slow over the course of next year as additional hikes work their way through the economy. With today’s reading, there is evidence that this slowdown is materializing. Still, consumers have financial resources in the form of excess savings, so the path to moderation may not be a smooth one. For now, we expect that monetary policy will remain restrictive until after the first quarter of 2024.”
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Andrew Grantham, CIBC Economics
“Today’s data point to sluggishness in Canadian consumer spending even before the Bank of Canada restarted its rate hiking cycle.
“While overall GDP in Q2 is still tracking close to the 1.5 per cent Bank of Canada MPR (Monetary Policy Report) forecast, today’s data suggest that consumer spending likely wasn’t a significant driver of that growth, even accounting for growth in services spending. Industry data showing strength in areas such as manufacturing and wholesale suggest that inventory accumulation or business investment may be more significant contributors, which wouldn’t be bad news from an inflation point of view.”
Charles St-Arnaud, Alberta Central
“The outlook for retail sales and consumer spending more broadly remains tilted to the downside. Consumers’ finances continue to be squeezed by an erosion in purchasing power due to high inflation and rising interest rates. The resilience in the labour market, with continued robust job growth, is likely a significant support to household spending. An underperformance in job growth, especially job losses, could lead to significant underperformance in consumer spending.”
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Marc Desormeaux, Desjardins Economics
“Retail sales momentum is clearly slowing. Purchases came in below consensus estimates, and we’ve now seen weak growth or outright declines in three of the past four months, with signs of more softness in June. Another 25-basis-point interest rate hike earlier this month from the Bank of Canada should weigh on the consumer in July and beyond.
“May data and downward revisions to April figures incrementally lowered our Q2 2023 real GDP growth tracking, but we’re still in the 1.5 to two per cent (quarter-over-quarter annualized) range. That is slightly higher than the Bank of Canada’s July forecast but is not enough to change our view that the Bank will hold rates steady in September.”
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TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
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Yuri Kageyama is on X:
The Canadian Press. All rights reserved.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
Companies in this story: (TSX:SHOP)
The Canadian Press. All rights reserved.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
Companies in this story: (TSX:REI.UN)
The Canadian Press. All rights reserved.
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