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Mannequin heads wearing face masks are displayed in a shop window in Toronto on April 29, 2020.

Nathan Denette/The Canadian Press

Canadian retail sales rose a tepid 0.4 per cent in August, the weakest pace since the economy began recovering from the pandemic and a sign that pent-up demand has been largely satisfied after a rush of consumer spending.

While August marked the fourth consecutive monthly increase in sales, it also fell short of the 1.1-per-cent gain Statistics Canada had estimated, partly because of an upward revision for July. Moreover, momentum seems to have stalled: In a preliminary estimate, Statscan said retail sales were “relatively unchanged” in September.

Despite the slowdown, the retail sector has carved out a quick V-shaped recovery. Total sales of $53.2-billion in August were 1.8 per cent higher than in February – before the pandemic led to strict shutdowns that clobbered sales – and up 3.5 per cent from last year.

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“Consumers continue to drive the recovery, with limited availability of services and travel at least partly redirected into goods spending,” said Bank of Montreal senior economist Robert Kavcic in a client note. “But, with a lot of pent-up demand and lifestyle-adjustment spending seemingly running its course, this momentum could be tougher to sustain in the quarters ahead.”

At the industry level, August brought mixed results. Sales at auto dealers rose 2.4 per cent from July. Grocery store sales climbed 1.3 per cent. And building material and gardening equipment stores saw a gain of 4.5 per cent, a sign that Canadians continue to invest in home renovations.

On the downside, things fizzled in several industries that proved exceptionally popular in the early months of reopening. Sales fell 3.7 per cent in August at sporting goods, hobby and book stores, while furniture stores eased back 0.7 per cent.

It has been a challenging rebound for the apparel industry, in particular. Sales at clothing and accessories stores fell slightly in August from July and are down 12 per cent from a year earlier. “When you’re spending discretionary dollars, you’re probably not spending them on dress suits and office clothing,” said Diane Brisebois, president and chief executive at the Retail Council of Canada.

Total e-commerce sales were up 61 per cent from last August, at $2.8-billion, but have fallen for three consecutive months, coinciding with fewer restrictions on retail stores.

The overall spending slowdown was not unexpected. The reopening of many stores in May and June unleashed a torrent of purchasing activity as consumers looked to buy goods that were off limits in March and April – a pace few thought was sustainable. Furthermore, the later weeks of summer brought more opportunities to spend on services, perhaps diverting some attention from retail.

“While the [August] results surprised us to the downside, they might in part reflect a reallocation of household activity towards services, including restaurant dining and bars, as patio service leapt ahead,” CIBC Capital Markets chief economist Avery Shenfeld said in a client note. (Canada’s retail figures do not include spending on food services.)

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The coming months are crucial for the retail sector, as Christmas and other winter holidays approach. With heavy restrictions on cross-border travel, Ms. Brisebois said consumers are reacting in two ways: saving more and redirecting travel dollars toward purchases for the home and items for family members.

However, she doesn’t expect to see any substantial growth in holiday spending this year. “We think the holiday season will be different. You’re not going to have 25 people around the Christmas tree, for example,” she said. “And you may not be gifting the way you did last year because of the circumstances.”

At the same time, there are some encouraging signs. Canada has recovered about three-quarters of its pandemic job losses, and income-support programs should ensure that the underemployed have some money rolling in over the coming months.

In recent weeks, several provinces have reimposed restrictions on service industries – notably restaurants, bars and gyms – which could give a boost to goods.

“There’s no question that someone else’s misery is another one’s gain,” Ms. Brisebois said.

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