Canadian retail sales growth will fall off next year, as slowing U.S. economic growth and a housing market downturn weigh on the consumer powerhouse provinces of Ontario and Quebec, according to an outlook from Kubas Consultants.
"It is a slowdown, but certainly not a collapse," said Ed Strapagiel, executive vice-president at Toronto-based Kubas. "An economic soft patch in the U.S. will make it much more difficult for our manufacturing industry to thrive."
Over all, the Canadian retail market is expected to grow 4.9 per cent next year, a drop from 6.3 per cent in 2005 and 2006.
Kubas expects retail sales in Ontario and Quebec will rise just 3.3 and 3.7 per cent next year, respectively, down from 4 and 4.4 per cent in 2006. Combined, the two provinces account for 57.3 per cent of all retail sales in Canada.
The manufacturing-dependent economies of Ontario and Quebec have been struggling with the effects of a strong dollar and slowing U.S. economic expansion.
In oil-rich Alberta, sales gains are forecast to slow to 10.7 per cent in 2007 from 16.5 per cent this year. Mr. Strapagiel said the absence of resource rebates, dubbed Ralph Bucks, along with moderating oil prices could curb the furious pace of expansion in the oil and gas sector. However, retail sales "will still remain high, so Alberta will merely be calming from white-hot to red-hot."
A sharp downturn in the U.S. housing sector and a more modest easing on this side of the border will mean Canadians are less likely to wander into their local home improvement store in search of a cordless drill and a few board feet of crown moulding. "The housing market slowdown will mean that a lot of the home improvement, home furnishing, and appliance retailers won't be growing as rapidly as they did this year and last," Mr. Strapagiel said. The sector has been a major pillar of retail sales growth in the past few years.
Sales at drugstores are also expected to slow from record-breaking levels next year.
The Kubas retail sales calculations encompass automobiles and gasoline stations, but exclude online and mail-order buying.
Crude oil prices have plunged by nearly a quarter from their summer highs, and gasoline prices have also taken a tumble. The drop will affect retail sales at gasoline stations, Mr. Strapagiel said. "High gas prices inflated overall numbers in 2005 and 2006, and that will reverse itself in 2007."
Forecasts for the U.S. are more dismal, with retail sales gains expected to slow to 3.8 per cent next year from 6.1 per cent this year and 7 per cent in 2005.
Yesterday marked the unofficial start of the U.S. holiday shopping season, as Americans lined up early on so-called Black Friday.
Mr. Strapagiel expects to see a "good but not great" Christmas season in Canada, with fourth-quarter retail sales forecast to rise 5.3 per cent, a one-percentage-point drop from last year.
