Ottawa, January 10, 2023
Canadian consumers appear to have increased their spending during the holiday season despite cutting back on expenses in the months leading up to it. This presents a mixed signal for policymakers at the central bank as they prepare for the upcoming rate decision next week.
According to Statistics Canada’s advance estimate of receipts released on Friday, retail sales in December saw a growth of 0.8%. This follows a 0.2% decline in sales in November, which were adjusted to 66.61 billion Canadian dollars (equivalent to about $49.38 billion). However, November’s retail sales were still 1.8% higher compared to the same month the previous year.
It is important to note that the early indication for December sales was based on responses from just under half of the retailers surveyed and may be revised. If these preliminary figures hold, it would mark the strongest month of sales since April. This data also reveals the ongoing resilience of households in the face of rising interest rates and persistent inflation, with retail sales provisionally showing an average increase of 2.2% from the previous year.
Nevertheless, November’s decline in spending contrasts with economists’ expectations of flat sales as projected in Statistics Canada’s advance estimate. Additionally, it follows two consecutive months of sales growth, with an increase of 0.5% each.
Among the nine subsectors tracked by the agency, four experienced lower sales for the month. The largest decline was observed in food and beverage retailers, which saw a decrease of 1.4% compared to the previous month.
When excluding the sales from gasoline stations and motor-vehicle and parts dealers, the decrease in core retail sales was even steeper, with a decline of 0.6% from October.
In terms of volume, when accounting for price adjustments, sales slipped 0.2% for the month.
Retail Data Indicates Slow Economic Growth
The latest retail data serves as an important indicator as we approach the end of the month and await the release of the gross domestic product (GDP) results for the final quarter of 2023. While the central bank will make a decision on interest rates this Wednesday, they have kept their benchmark rate unchanged in the last three policy meetings. Economists predict that the Bank of Canada will maintain its wait-and-see approach, looking for further signs that inflation is heading towards a sustainable decrease. However, market expectations suggest a potential rate cut as early as this spring.
Following a contraction in the third quarter on an annualized basis, economists anticipate minimal growth in the economy during the last three months of the year. Fortunately, there has been an upturn in factory sales and wholesale trade in November, recovering from previous declines.
Detailed retail receipts for November reveal several trends. Canadians reduced their spending at grocery stores and supermarkets, as well as on beer, wine, and liquor. General merchandise store sales experienced a decline, while there was an increase in sales at clothing and accessories, jewelry, and leather goods retailers.
Surprisingly, motor vehicle and parts dealers experienced a third consecutive month of sales growth, rising by 0.5% from October, despite a fall in trade at used car dealerships. Additionally, sales at gas stations and fuel vendors increased thanks to a significant rise in volumes.
Overall, the retail data provides valuable insights into the current state of the economy. We eagerly await the release of the GDP results and the Bank of Canada’s decision on interest rates.
