Retail sales declined by 0.2% month-on-month (m/m) in November, coming in weaker than Statistics Canada’s advance estimate for a flat reading. October’s print was revised slightly to +0.5% m/m from +0.7% m/m.
Adjusted for inflation, the volume of retail sales reported a loss of 0.2% in November, reversing course from last month’s robust 1.0% m/m reading.
Sales at motor vehicle and parts dealers continued to recover from weak summer sales. This category was up by 0.5% m/m in November, but last month’s gains were revised down from 1.1% to 0.7% m/m.
Receipts at gasoline stations and fuel vendors were up 0.3% m/m, after a loss of 3.1% m/m in October.
Excluding sales at car dealerships and gas stations, core retail sales were down 0.6% m/m, following a solid gain of 1.2% m/m in October.
- This month’s loss was led by declines at food and beverage retailers (-1.4% m/m) and general merchandise stores (-1.8% m/m). However, accounting for October’s gain of 1.0% m/m, core sales are tracking 1.2% in the fourth quarter (quarter-on-quarter, annualized).
- The two categories with positive readings were clothing and clothing accessories stores (+1.5% m/m) and health and personal care stores (+0.3% m/m).
E-commerce sales turned negative this month, losing 1.5% m/m after an upwardly revised gain of 2.4% m/m in October (from +1.8 m/m, reported earlier)
Statistics Canada’s advance reading suggests that retail sales rebounded in December by an estimated +0.8% m/m (with 49.4% of companies surveyed providing responses).
Key Implications
We don’t read too much into today’s negative print in retail sales, which is bookended by a solid October reading and a resilient flash estimate for December. There are two major factors at play: the recovery in auto production, which supported auto sales and stronger-than-expected housing activity, which was aided by warmer weather and strong population growth. All this points to a solid finish to 2023. As a result, we think there is an upside risk to our Q4 spending forecast of 2.0% quarter-on-quarter growth (annualized).
The real question is will this resilience last? Not according to the Bank of Canada’s Survey of Consumer Expectations. Canadians are increasingly feeling the pain of both inflationary pressures and higher cost of borrowing. Consequently, they are making plans to reduce spending on large items while also looking for bargains when shopping for essential. This suggests that the need for accommodative policy will come sooner rather than later, despite the recent improvement in consumer spending and stubbornness of inflation. We expect the first rate cut in the second quarter of 2024.
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