Highlights:
- Retail sales rose 0.4% in the month that was in line with market expectations and up from a downwardly revised gain in January of 0.1% (0.3% previously). Retail sales are up 3.5% from a year ago.
- E-commerce sales, which represents 2.7% of overall retail sales, are up 14.6% relative to a year ago levels though this is down from a recently quarterly peak of 35% in the second quarter of last year.
Our Take:
Nominal retail sales rose 0.4% in February which represented an improvement from a downwardly revised gain of only 0.1% in January (0.3% previously). This rebound in large part reflected a recovery in auto sales of 1.9% after a disappointing drop in January. Excluding this component, sales were disappointingly flat with declines in a number of key components including clothing (-1.4%), furniture (-2.0%) and, unexpectedly, gasoline stations (-0.9%). Eliminating the impact of higher prices, the volume of retail sales rose 0.3% in February. This more than reversed the 0.2% drop in January.
The volume of retail sales to date in the first quarter is up a modest 1.2% relative to year ago levels. This reflects a relatively sharp slowing from a recent peak in the second quarter of last year of 7.4%. Our expectation is that in the face of rising interest rates, consumer spending growth will continue to slow through 2018. Last year’s strong increase in consumption was the key contributor to the Canadian economy currently pushing up against capacity limits. So the slowing isn’t unwanted because it will prevent the economy from running too hot and dampens the risk of a pickup in inflationary pressures. To keep growth at a sustainable but non-inflationary pace, our expectation is that the central bank will continue to reduce current highly stimulative monetary conditions. Though the Bank of Canada opted to hold the overnight rate unchanged at 1.25% at this week’s policy meeting, it acknowledged that interest rates will eventually need to move higher. As to the pace of tightening, the best guide offered by the central bank was that it would be “data dependent.”
