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Canadian Retail Sales Down in December, But Volumes Edge Up

Canadian retail sales dropped 0.1% (m/m) in December, following the prior month’s 0.9% drop. This was slightly better than consensus expectations for a 0.3% decline. The picture was somewhat better after accounting for price changes, with volumes up a modest 0.2%.

The headline decline was mostly a gasoline price story, with sales at gasoline stations falling 3.6% (0.3% in real terms). Excluding this category, retail sales were up 0.4%. Electronics and appliances stores also had a notably weak showing, down 4% on the month.

Providing some offset were sales at motor vehicles and parts dealers and food and beverage stores, which moved up 1% and 0.9% on the month, respectively. Building material and garden equipment stores provided a decent surprise, up 3.1%, the first increase in this housing-market-sensitive category since mid-year.

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Regionally, retail sales were up in six provinces, leaving the decline concentrated in Ontario and Quebec. Retail sales activity fell 0.5% and 0.2% in those provinces, respectively, with B.C. sales also down -0.2% m/m and Albertan sales effectively unchanged.

Key Implications

The retail activity picture in Canada remains that of a slowdown consumer spending. For the year as a whole, retail sales increased 2.7%, with a modest 0.7% increase in volumes – a notable moderation relative to last year, and the slowest pace of volumes growth since 2009. Worse, much of the disappointment was in the fourth quarter, with a 0.5% nominal drop and an almost flat volumes print. Still, the December release came in slightly better than expected and with a modest increase in volumes.

Looking ahead, the impacts of a healthy, albeit moderating labour market will continue to be countered by elevated borrowing and debt service costs, leaving us looking for only a modest pace of consumer spending growth. We expect the Bank of Canada to remain on the sidelines in the near-term, consistent with its data-driven approach and the range of moderating economic activity indicators.

Today’s print leaves our Q4 GDP tracking unchanged a 0.9%, slightly below the Bank of Canada’s January MPR expectations (1.3%).

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