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Canadian retail sales registered their steepest monthly drop in 11 years in November, dropping 2.4 per cent to $34.9-billion on a seasonally adjusted basis, Statistics Canada said Thursday.

The decline was worse than the 2 per cent drop expected by forecasters, and even though it stemmed mostly from lower gasoline prices and unit sales of new cars, economists said it looks as if consumers are now sitting firmly on their wallets.

“With a recession in full flight, Canadians are rediscovering the virtues of frugality, much to the chagrin of retailers,” Canadian Imperial Bank of Commerce economist Krishen Rangasamy said in a commentary on the StatsCan report.

“Given the declining volumes seen in manufacturing, wholesaling and now retailing, November's GDP (out next week) is set for another dip, all but confirming a large economic contraction in the final quarter of 2008.”

“I don't think it's as bad as the headline would suggest [because] this was largely a gasoline story,” Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said in a telephone interview.

“But even so this is a real turnaround from what we've seen in the last few years, where Canadian consumers could be counted on as a very steady source of support for the economy.”

The November sales were flat, excluding the automotive sector, which includes new, used and recreational vehicles and parts, as well as gas stations, StatsCan said.

A 14.9-per-cent sales drop at gasoline stations – to $3.8-billion – was the largest monthly decline since September, 2006. However, this was all price-induced as gasoline prices at the pump fell considerably from October.

StatsCan said the lower unit sales of new motor vehicles were behind a 3.4 per cent sales decline at new car dealers in November.

In all, auto sector sales fell to $11.3-billion for the month from $12.1-billion in October.

Sales also fell in four other retail sectors, StatsCan said.

The miscellaneous retailers sector endured the second-largest decline in November — a 0.7 per cent slip — while sales in general merchandise stores decreased 0.5 per cent, their second drop in nine months.

The largest increases were in the pharmacies and personal-care stores sector, and the food-and-beverage stores sector, where sales rose by 0.5 per cent in each sector.

Lower gasoline prices and a decline in sales at new car dealers led to a drop in sales in all provinces in November. With the exception of Prince Edward Island and Saskatchewan, the decline in retail sales was at least one per cent.

Robert Kavcic, an economist at BMO Nesbitt Burns warned before StatsCan released the November data that the report was likely to be “gory.”

He noted that Canada lost 70,600 jobs in November, the biggest monthly decline in more than a quarter century. As well, existing home sales posted their second consecutive monthly double-digit decline and that the Toronto Stock Exchange shed a third of its value in the three months ending in November.

CIBC's Mr. Rangasamy concurred.

“Canadians are understandably more cautious at the cash register these days,” he said. “The combination of plunging asset values and lower incomes have left Canadian consumers on the ropes, and looking for ways to stretch their dollars. All told, retailing woes are set to extend well into the first quarter of 2009, after which consumer demand could pick up with the help of the much-anticipated stimulus package from the federal government.”

Mr. Porter, meanwhile, took a little comfort from the fact that even with November's worse-than-expected numbers now in the hopper, real retail sales (adjusted for both inflation and seasonality) for the fourth quarter are still running “slightly above” the third quarter.

“So it's not like things have completely fallen out of bed,” he said. Nevertheless, he conceded that “underlying consumer spending has stalled.”

Royal Bank of Canada senior economist Robert Hogue, said that combined with wholesale and manufacturers' sales figures released earlier, the November retail data suggest that real economic output fell “at least 0.5 per cent” during the month, “which would be in line with our forecast of a sizable drop of 2.5 per cent (annualized rate) in the final quarter of last year.

“Activity is expected to contract further in the first quarter of this year, matching the technical definition of a recession,” he said in a commentary.