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economy lab

Holiday shoppers at Toronto’s Eaton Centre.Fernando Morales/The Globe and Mail

Hope you had a Merry Christmas. The retailers at your local mall sure didn't.

Statistics Canada reported truly dismal December retail trade numbers Friday: Seasonally adjusted sales slumped 2.1 per cent in what is supposed to be the biggest shopping month of the year. Economists had been looking for a much smaller dip of about 0.3 per cent, mostly due to an anticipated pullback from November's red-hot auto-sales numbers.

They got the drop-off in autos, but much of the rest of the retail sector came along for the ride – including the segments that are traditionally closely associated with holiday buying. Sales at electronics and appliance stores plunged 12 per cent. Department store sales slumped nearly 10 per cent. Sales at sporting goods, hobby, book and music stores were down 1.8 per cent. Lower prices contributed to some of the retail decline – but that only suggests that retailers cut prices for the holidays and still attracted fewer shoppers.

As retailers lick their wounds, the attention turns to what this bleak December means for fourth-quarter gross domestic product, which Statscan reports March 1. It ain't pretty.

Household consumption of goods makes up nearly one-third of Canadian gross domestic product; a slowdown in retail demand, therefore, represents a huge hit on the economy. For the entire fourth quarter, retail sales for rose a tiny 0.2 per cent from the third quarter. And that includes the impact of inflation. So, essentially, it looks like a third of the economy contributed no real growth to fourth-quarter GDP.

Compare this with the third quarter, when real GDP rose a thin 0.1 per cent from the previous quarter. Retail sales in that quarter were up 0.8 per cent versus the second quarter; the household consumption segment was the biggest contributor to growth. One of the few segments the economy had going for it in the third quarter seems to have left the building in the fourth.

The lack of consumer activity tosses another anchor to a fourth quarter that was already being dragged down by a sinking housing market. Economist have already suggested that the sharp decline in housing starts and home re-sales may have lopped as 0.2 percentage points off GDP growth in the quarter. Economists were already anticipating that the fourth-quarter growth figure wouldn't be much better than the third quarter; the way the numbers are starting to add up, it could be worse.