Retail sales fell 0.8% in December in both value and volume terms. Despite this soft showing, sales rose 6.7% in 2017 as a whole, the strongest annual performance since 1997.
December sales fell in 6 of 11 major sectors, with the declines led by general merchandise stores (-5.3% m/m), health/personal care stores (-3.8%), and electronics and appliance stores (-9.1%). Conversely, sales at motor vehicle and parts dealers grew 2.1% on strength in new car sales, while spending at food and beverage stores rose 1.4%. As usual, e-commerce saw a strong performance, up 4.1% year-on-year on a seasonally unadjusted basis, outpacing the 3.2% y/y climb in overall retail sales.
On a provincial basis, sales declines were reported in 5 of the provinces. Ontario (-1.6%), Manitoba (-1.4%), Alberta (-0.5%) and B.C. (-0.6%) led the way lower.
Key Implications
Bah humbug! It seems that Canadians were once again stingy this past holiday season, as December retail sales volumes fell for a third straight year. The December numbers are only part of the story however, with prior months’ sales revised upwards, perhaps reflecting a shift in shopping habits that may not be fully reflected in the seasonal adjustment – sales volumes for the quarter as a whole rose at a respectable 3.8% annualized pace. All told, too much should not be read into a single month’s performance of this volatile series, and we continue to look for a roughly 2% (annualized) gain in fourth quarter GDP to close out the year.
Looking ahead, healthy aggregate income gains should support consumer spending going forward, but the strong gains in the first half of 2017 that led to the best sales performance of the past two decades are not expected to be repeated any time soon. The tailwind of income growth will be fighting against rising borrowing costs for already highly indebted households and near-term adjustments in key housing markets. The net result will likely be a more moderate growth of consumer spending in 2018.
Taking the Bank of Canada’s perspective, today’s report isn’t likely to move the needle. More important will be what occurs over the coming months, as the impacts of mortgage underwriting changes and three policy rate hikes continue to work their way through the economy, while external risks remain. A wait and see approach to confirm that the Canadian economy remains on solid footing still favours July as the likely target for the next rate hike.
