Retail sales advanced 0.4% in February. The increase was almost entirely due to volumes, which rose 0.3%. However, volumes were revised down notably in the prior three months.
Higher sales at motor vehicle and parts dealers was the main driver behind February’s gain (+1.4%), with sales excluding this category flat in the month. Still, sales were higher at general merchandise stores (+2.0%) and miscellaneous retailers (0.4%). On the opposite end of the spectrum, sales dropped in most other categories, with notable declines in furniture, home furnishing and electronics (-2.0%), gasoline stations (-0.9%) and clothing and clothing accessories stores (-1.4%).
Sales were higher in seven of ten provinces, though the majority of the gain was concentrated in Ontario. There were also relatively large gains in Nova Scotia (+3.2%), Saskatchewan (0.6%), and Quebec (0.5%). Conversely, sales dropped in Manitoba (-1.9%) and Alberta (-0.3%), while dipping slightly in Newfoundland and Labrador (0.1%).
Key Implications
Though volumes increased in February, downward revisions to earlier months imply weaker spending momentum early in 2018 than previously thought. So far in the first quarter, volumes are down 1.5% compared to Q4’s average, pointing to softer consumer spending in Q1.
That said, we still expect consumer spending to contribute to economic growth in 2018, buoyed by a healthy labour market. However, some easing is expected from 2017’s turbocharged rate, as spending is dampened by weaker housing market activity and rising interest rates.
February’s gain in volumes puts real GDP on track for increase of 1.6% in Q1, not far from the Bank of Canada’s recently revised estimate of 1.3%. As such, today’s report likely does little to alter current outlook at the Bank, with policymakers likely to continue a gradual pace of normalization, with the next hike expected this summer.
