If you have a moment, I would like to take the time and explain how weak retail sales in Canada might influence the Bank of Canada’s decision on interest rates, September 4th. Recent retail sales data shows Canadians are struggling because of high interest rates. People are hoping that future rate cuts will make mortgages cheaper and cost of living more affordable. For now, spending is low, but it might get better in 2025 if rates go down.

The Canadian Dollar is now worth $0.74 US, a little stronger than before. This could give the Bank of Canada some flexibility. Consumer spending is very important, making up 60% of Canada’s economy. Even though our population is growing quickly, retail sales are not. In June, retail sales went up by just 0.2%, which is much lower than the usual growth rate of 4.69%. This shows Canadians are buying less.

There are also over 1 million mortgages coming up for renewal in 2024, and higher rates mean higher costs for homeowners. This is causing people to cut back on spending, which affects the economy.

Consumer spending continues to show signs of stress as many wait for the impact of the Bank of Canada (BoC) rate cuts to filter through to mortgage interest costs. Interest rates are still high. Canadians renewing fixed-rate mortgages in 2024 still face significantly higher rates, which will cut into broader purchasing power.

However, as the BoC continues its path to lower rates, mortgage holders will feel some relief and at least partially restored purchasing power upon renewal. We expect consumption will remain soft (relative to still-strong population growth) over the second half of the year before picking up in 2025 as the BoC continues to ease monetary policy

September 4^th  Will we see a cut of 0.25% or a cut of 0.50% or nothing? We’ll have to wait and see. 

The Canadian Dollar is $.74 US. Bloomberg graph below. June 5^th (prior to first Bank of Canada cut) was $.73. After two decreases and zero Federal decreases, it’s stronger; 1 penny, but still stronger.