Canadian retail sales rose 0.3% in January, following a sharp drop in December. Price increases were behind much of the gain; in real terms, sales edged up by 0.1%.
Sales were up in two thirds of the industries, with electronics and appliance stores (+4.0%), furniture and home furnishing stores (+3.4%) and general merchandise stores (+2.3%) leading the way. In contrast, sales at motor vehicle and parts dealers declined during the month due to a drop in new and used vehicle sales.
Regionally, the performance was mixed, with sales rising in six provinces. Manitoba (+2.7%), PEI (+1.7%) and Ontario (+1.2%) recorded the largest gains, while sales in B.C. (-1.0%) fell for a third straight month.
Key Implications
Retail sales were up in January, but the growth in volumes does little to offset the sharp drop recorded at the end of 2017, and reinforces our view that the Canadian economy got off to a soft start this year. Overall real GDP growth for the first quarter is expected to come in at around 1.4%.
Going forward, household spending should be supported by solid income and job gains, but rising interest rates and a cooling in the housing market will provide some offset. As such, consumer spending is expected to decelerate from last year’s hearty pace this year.
While the inflation data reported this morning may give them pause, a soft pace of economic growth means that the Bank of Canada is likely to maintain a cautious stance to rate hikes. It has clearly stated that future decisions will be data dependent, and today’s report will do little to move the needle – especially given weakness in other indicators so far this year. At this point, we don’t expect the Bank to move off the sidelines before July.
