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Economy Lab

Weak December sales trigger fears of slowdown Add to ...

Economists are wondering if the 0.2 per cent drop in Canadian retail sales in December is the beginning of a new trend.



Retail sales had been rising for four consecutive months. That string ended at the end of 2011, according to Statistics Canada’s latest shopping survey, reflecting the disappointing holiday period for North American retailers.

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Analysts at BMO Nesbitt Burns, Toronto-Dominion and Capital Economics were among those suggesting December’s weak showing foreshadows a sluggish 2012 for the Canadian economy.

“We expect consumers to rein in spending in 2012 and we can see this trend was already under way as 2011 came to a close,” TD’s Leslie Preston said Tuesday in a note to clients. “The unemployment rate has been edging up and wage gains have not been keeping pace with inflation, setting the stage for spending growth to slow this year.”



The retail data are important because Canada’s economy these days is generating the bulk of its growth from domestic demand. But with household debt at record levels, and the unemployment rate at 7.6 per cent, consumer spending is poised to slow. That’s a key reason the Bank of Canada is in no hurry to lift interest rates.



Retail sales in December were yanked lower by automobiles, which dropped one per cent. But sales of other goods were lacklustre. Excluding cars and trucks, retail sales were unchanged.



The previous strength in retail sales should still provide a boost to fourth-quarter gross domestic product. Adjusted for prices, sales were up an annualized 5.3 per cent in final three months of 2011, the fastest since the first quarter of 2010, according to Krishen Rangasamy of National Bank Financial in Montreal.



Still, that should leave the fourth-quarter economic growth rate at about the 2 per cent annual rate that the Bank of Canada predicted, several economists said. That’s not strong enough to make a significant dent in Canada’s unemployment rate, which could add to the pressure on Finance Minister Jim Flaherty to ease up on his austerity plan.

Editor's note: Due to a typo, an earlier version of this story incorrectly said the string of rising retail sales ended at the end of 2012. This story has been corrected.

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