Sluggish retail sales in December capped off the sector’s worst year for growth in a decade, raising concern about the Canadian consumer’s ability to lift the economy.
Total sales of $51.6-billion in December were essentially flat from the previous month, and down from a 1.1-per-cent gain in November, Statistics Canada said Friday. Excluding the auto sector, retail sales increased by 0.5 per cent, supported by a real estate rebound that’s resulted in stronger sales at building-material and furniture stores.
The longer-term trend, however, points to a fatigued consumer. Retail sales increased by 1.6 per cent in 2019, the slowest growth since Canada was mired in an economic downturn in 2009, while volumes have stalled for about three years, despite an influx of new consumers as the country welcomes record numbers of immigrants.
“[T]he latest numbers do little to change the overall narrative that Canadian households won’t be supporting the economy to the extent they have in the past,” Royce Mendes, senior economist at Canadian Imperial Bank of Commerce, said in a client note.
Friday’s report provided another sign the economy is coping with a weak hand-off to 2020. For the fourth quarter, Canada has posted an onslaught of poor data – such as sluggish exports and manufacturing sales –and now must contend with the unknown fallout from the coronavirus outbreak and the rail blockades, which have affected operations for some major companies.
The Bank of Canada projects the economy grew at an annualized 0.3-per-cent rate in the fourth quarter, while some private-sector economists suspect it was weaker. As such, an increasing number are betting the bank will soon cut its policy rate for the first time since 2015.
“Consumer spending is one area that the Bank of Canada has been watching closely and the persistence of recent soft trends makes a rate cut more likely,” Toronto-Dominion Bank economist Omar Abdelrahman said in a research note.
The health of Canadian consumers depends to some degree on where you look. In 2019, Ontario and Quebec saw retail-sales growth of 2.8 per cent and 1.9 per cent, respectively. Those provinces also registered the strongest job creation last year, in raw numbers.
But the view is decidedly weaker in provinces whose fortunes are more closely tied to commodity prices. While Alberta improved from 2018’s 2-per-cent drop, retail sales still declined 0.9 per cent last year, Statscan said. Saskatchewan and Newfoundland and Labrador also posted declines for the second consecutive year.
There were, however, some positive signs. E-commerce sales grew by 22 per cent in 2019, while most retail categories experienced growth in December, including clothing and health-related stores.
“Many of these had been important drivers of the slowdown seen in household spending in 2019, so there could be some hope that the cooling in consumer spending is at least beginning to thaw,” Mr. Mendes said.
Canadian consumers may see some relief ahead. Although households currently spend a record 15 per cent of after-tax income on debt payments, lower mortgage rates should flow through to balance sheets, and a BoC rate cut is a firm possibility.
Of course, many observers worry that Canadians will respond to monetary easing by piling on debt. But it’s not a concern shared by all.
“The country is having the wrong debate about worrying over how rate relief would spawn imbalances,” Derek Holt, Bank of Nova Scotia’s head of capital markets economics, said in a client note. “The imbalance is staring us right in the face by way of a tapped out consumer.”
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