Highlights:
- Retail sales fell 0.8% in both nominal and volume terms in December. The decline wasn’t exactly broadly-based with 6 of 11 subsectors recording declines.
- Sales at electronics and appliance stores fell 9% after a double digit gain in November that reflected Black Friday sales as well as a new product launch.
- E-commerce sales were up just 4% from a year ago in December, though for 2017 as a whole online retailers saw a 30% jump in sales.
- Today’s data provides the last partials for December GDP, which we expect rose by 0.1%. That remains consistent with our forecast for annualized growth of 1.9% in Q4/17.
Our Take:
Retail sales fell by 0.8% in December to retrace about half of the increase seen in the previous two months. That has become a familiar pattern with holiday sales also being pulled forward in 2015 and 2016—a trend the seasonal adjustment process has been slow to catch up with. For the quarter as a whole, retail sales volumes were up an annualized 3.8%, supporting our forecast for consumer spending to have increased by slightly more than 2% in Q4/17. While still a healthy increase, that would be down from average gains of 4% in the prior four quarters. We think Q4’s more moderate pace of consumer spending will continue in 2018 as higher interest rates and slower employment growth leave households with a bit less spending money, even as rising wages provide some offset. Along with slower demand growth, retailers continue to face cost pressures, including higher minimum wages in some provinces, as well as increased competition from online sellers. 2017 was a strong year for the sector with sales volumes rising at their fastest pace since 2004, but we doubt the feat will be repeated this year.
