Canada retail sales rise in January

Article content

Canadian consumers went on a spending spree in January, but might have run out of steam in February.

Article content

Statistics Canada reported March 24 that retail sales fell 0.6 per cent last month, an estimate based on preliminary data from its monthly survey. The “flash” reading suggests consumer demand might be fading in the face of higher interest rates and persistent inflation.

Article content

In January, retail sales rose 1.4 per cent from the previous month, much better than analysts’ expectations for an increase of 0.7 per cent. Excluding automobiles and gasoline sales, Statistics Canada said sales rose 0.5 per cent.

Article content

In volume terms, which adjusts for inflation, retail sales increased 1.5 per cent in January, the agency said.

The February data align with what Toronto-Dominion bank is seeing. “Our internal card spending data aligns with this estimate, showing that spending on goods fell in that month, indicating a decline in retail sales,” Ksenia Bushmeneva said in a note.

Article content

Article content

A pullback in spending was also supported by weaker consumer confidence. Polls have showed repeatedly that higher interest rates and inflation have soured the mood of households, which economists say will eventually show up in weaker demand.

“Consumer confidence has recovered since the Bank (of Canada) signalled its ‘conditional pause’ (on rates) in January, but it continues to point to downside risks to the outlook for retail sales volumes,” Stephen Brown, an economist at Capital Economics, said in a note.

The outlook might be cloudy, but the rearview mirror looks good.

In January, sales rose in seven of nine categories, with cars and car parts, and gasoline leading the pack, up three per cent and 2.9 per cent respectively. Brown said that’s probably the result of easing supply issues.

Article content

Canadians also spent more on clothing and clothing accessories, with sales up 2.2 per cent, the largest increase since February 2022, according to Statistics Canada.

The data agency, at the start of 2023, implemented a new method to measure retail sector activity that included purchases made through virtual sellers such as Amazon. Previously, StatCan only included sales from bricks and mortar stores and from their online operations.

The Bank of Canada is looking for higher interest to crimp consumption and slow the economy to rein in decades-high inflation. The latest consumer price index, released on March 21, showed that inflation slowed to 5.2 per cent for February, compared with 5.9 per cent year over year in January.

Article content

Brown noted that the increase in sales provided more fuel to estimates that gross domestic product rose by 0.3 per cent month-over-month in January. So far, the Canadian economy has defied the Bank of Canada’s expectations that higher interest rates would push it into recession.

February’s estimates that consumer spending turned negative could be welcome news for the central bank.

Toronto-Dominion said that much of the financial “pain” from higher borrowing rates has yet to felt among Canadian households.

“As such, we continue to expect consumer spending to slow significantly in the second half of this year as this headwind intensifies and the labour market slows,” said Bushmeneva of TD.

Statistics Canada also published other forecasts on March 24 pointing to a slowdown in February. Preliminary estimates showed wholesale trade fell 1.6 per cent while manufacturing sales fell 2.8 per cent.

• Email: gmvsuhanic@postmedia.com | Twitter: gsuhanic