Supply Chain

Canadian Retail Sales Slow in Third Quarter as U.S. Tariffs Persist

Canadian Retail Sales Slow in Third Quarter as U.S. Tariffs Persist

Sedat Onat
Canadian retail sales slowed markedly in the third quarter of 2025 due to the ongoing trade war with the U.S., slowing population growth, and consumer caution. Automotive sales in particular showed a sharp decline due to the impact of U.S. tariffs.

Canada's economy experienced significant slowdown in the third quarter due to weakening consumer spending and the effects of ongoing trade tensions with the U.S. According to Statistics Canada data, retail sales rose just 0.2% in the July–September period. This rate fell below the 0.3% increase in the second quarter, marking the weakest retail performance in the past year.

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Sharp Monthly Sales Decline
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September sales fell 0.7%, matching economist expectations. Preliminary estimates for October show sales were flat. This picture reveals that consumers are exercising caution due to high prices, trade uncertainty, and the impact of tariffs.

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Tariff Effects Growing in Automotive Sector
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U.S. tariffs have particularly triggered sharp contraction in the automotive sector:

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  • Motor vehicle sales fell 2.9% in September — the first decline in three months.

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  • Sales at new vehicle dealerships declined noticeably.

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  • By contrast, automotive sales rose 7.4% in the first nine months of the year — economists attribute this gain to consumers rushing to purchase vehicles before tariffs worsen further.

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Bank surveys show that Canadians firmly believe tariffs will drive up vehicle prices.

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Mixed Picture in Core Retail Sales
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Outside of automotive, the picture is more balanced:

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  • In September, non-automotive sales rose 0.2% — better than economist expectations of a 0.5% decline.

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  • However, core retail sales (excluding vehicles and gasoline) show notable weakness.

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Largest declines:

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  • Building materials and garden equipment stores: –2% (third consecutive decline)

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  • General merchandise stores experienced mild contraction

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Largest gains:

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  • Food and beverage retailers: +0.8%
    Beer, wine, and liquor stores showed strong growth
    Supermarkets and discount stores also rose

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Provincial Sales Declined
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In September, six of ten provinces saw sales decline. The sharpest drops:

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  • Ontario: –1.2% (Toronto –2.3%)

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  • British Columbia: –0.9% (Vancouver –1.0%)

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With Ontario serving as Canada's manufacturing hub, this decline could have broader economic implications.

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Slowing Population Growth Dampening Consumption
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In recent years, rapid population growth was the key driver behind Canada's robust economic expansion. However, the federal government's new immigration restrictions have dramatically slowed population growth.

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This is accelerating weakness in household spending.

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Central Bank: No Further Rate Cuts Expected
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Bank of Canada (BoC) is now in a wait-and-see mode after reducing its policy rate to 2.25%:

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  • The bank says the current rate level is in the "appropriate range".

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  • Economic slowdown and weak consumption reduce the need for more aggressive rate cuts.

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  • The BoC expects third-quarter growth to materialize at only around 0.4% on an annualized basis.

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Economic Outlook Remains Uncertain
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Charles St-Arnaud, chief economist at Alberta Central, noted that weak retail performance will contribute only modestly to GDP, stating:

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"In terms of the economic outlook, the critical factor will be the resilience of the labour market."
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Shelly Kaushik from Bank of Montreal sums up the situation as follows:

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"While low interest rate support persists, trade uncertainty is weighing on the retail sector. The economy is moving along a path of modest growth."
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Key Takeaways:
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  • Canadian retail sales at Q3 +0.2% mark the slowest pace in a year.

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  • U.S. tariffs hit automotive sales hard (September –2.9%).

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  • Core retail showed limited growth, buoyed by food & beverage categories.

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  • A dramatic slowdown in population growth is creating a drag on consumption.

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  • BoC cut rates to 2.25% and is now in holding mode.

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  • Economists expect low growth for the remainder of 2025 and elevated uncertainty.

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Sources
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News Link: https://www.supplychainbrain.com/articles/42887-canada-retail-sales-slow-in-third-quarter-as-tariffs-persist

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Author: SedatOnat.com

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