- Retail sales fell 0.3% month-on-month in January. This matched the (downwardly revised) drop in December, and came in below the consensus call for a 0.4% rise. Stripping out price movements, sales volumes were essentially unchanged (-0.0%), with December’s initially reported gain revised into negative territory as well.
- Part of the story was down to the auto sector: stripping out sales at auto dealers (-1.5%) and gas stations (-0.4%), sales were up 0.2% in nominal terms. However, the details here were somewhat mixed. The sizeable food and beverage store category was up 0.4% (but flat on a volumes basis), and building material/garden equipment store sales rose 1.4% in both dollar and volume terms.
- On the other side were furniture and home furnishings stores, down 0.4% in dollar terms, and general merchandise store sales were down 2.4%, with the latter creating the largest drag outside of auto dealers.
- Looking across the provinces, Ontario drove much of the decline (down 1.0%), with Manitoba (-2.0%) and Alberta (-1.0%) also notable contributors. Conversely, British Columbia saw a healthy month, with sales up 1.5%.
Key Implications
- Not the best start to the year. Not only did retail sales stumble out of the gate, we also received revisions pointing to less strength than originally reported to close out last year. The culprit again seems to be elevated borrowing costs, with rate sensitive sectors such as auto dealers and furniture stores down on the month.
- This should come as no surprise, and, after some decent reports elsewhere (wholesale trade, manufacturing sales), today’s data re-affirms our view that the Canadian economy likely stood still at the beginning of the year (current Q1 GDP tracking: -0.2%). Past interest rate increases seem to be doing their job, sending consumer spending on a softer trajectory as households adjust to higher borrowing costs.
- Indeed, to the extent that today’s data hits the Bank of Canada’s radar, it will likely serve to provide comfort on their recent shift back to wait and see mode. Our latest Quarterly Economic Forecast sees only modest growth ahead, so Governor Poloz and company may be waiting and seeing for quite a while.
