September's decline signals consumer weakness even as tariffs and labour market concerns persist
Canadian retail sales slumped 0.7% in September to $69.8 billion, marking the slowest pace in months and raising fresh questions about consumer resilience heading into the holiday season.
Despite this, economists agree the weakness will do little to persuade the Bank of Canada from its current holding pattern on interest rates.
Trade uncertainty dampens spending
Motor vehicle sales led the decline, falling 2.9% in September following three months of gains.
"The largest provincial decrease in dollar terms was observed in Ontario (-1.2%) on lower sales at motor vehicle and parts dealers," Statistics Canada reported.
Core retail sales, excluding autos and gas stations, remained essentially flat, with building material retailers posting their third consecutive monthly drop.
Shelly Kaushik, senior economist at BMO, said the data underscored ongoing headwinds from trade uncertainty.
"Canadian retail sales continue a holding pattern as support from lower interest rates faces headwinds from trade uncertainty," Kaushik said.
The broader picture, she added, was "one of mild economic growth that will do little to move the needle for the Bank of Canada heading into its December meeting."
E-commerce sales deteriorated further, declining 3.5% to $4.1 billion in September. The advance estimate for October suggested sales were "relatively unchanged," according to Statistics Canada.
Canada’s inflation eased to 2.2% in October, helped by lower gasoline and slower grocery price growth. Andrew Grantham of CIBC expects the Bank of Canada to hold rates, while RBC’s Claire Fan notes persistent domestic demand.https://t.co/77xUsPrMuf
— Canadian Mortgage Professional Magazine (@CMPmagazine) November 17, 2025
What weak consumption means for policy
Sales grew just 0.2% in the third quarter, the weakest pace in more than a year. Charles St-Arnaud, chief economist at Alberta Central, said the slowdown meant consumer spending contributed only marginally to GDP growth.
"Whether the labour market continues to be resilient remains key for the economic outlook," St-Arnaud said.
Maria Solovieva, economist at TD, offered a qualified bright spot: internal credit and debit card data suggested "relatively healthy gains in services spending, especially travel and recreation."
Still, Solovieva expects real personal spending growth to drift "to a below-trend pace in the second half of 2025."
"At this stage, the Bank of Canada has largely priced in this softer demand profile, giving policymakers sufficient justification to remain on hold," she added.
The central bank's decision to hold rates at 2.25%, declaring them "about the right level," now appears well-timed.
The Bank of Canada foresaw exactly this scenario: weakening household consumption driven by immigration curbs and a softening labour market.
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