Saturday, March 21, 2015

Canadian Retail Sales Down 1.7% in January

Canadian Retail Sales Down 1.7% in January

Canadian retail sales declined by 1.7% in January 2015, marking a larger decline than market expectations for a 0.8% drop and building on a revised 1.8% decline (was -2.0%) in December 2014.
Much of the weakness in nominal sales resulted from a sharp drop in gasoline prices that pushed gasoline station receipts downward by 8.8% after a 6.9% drop on December; however, excluding gasoline stations, sales still declined by 0.8% in January.
Controlling for the effect of prices, the volume of sales declined by 1.2% in January following a similar 1.2% drop in December (was -1.3%) and a 0.6% (was 0.7%) gain in November.
Weakness in retail sales was widespread with sales down in nine provinces. The largest drop, in dollar terms, occurred in Quebec (-2.4%) with sales also down sharply in Ontario (-1.4%) and Alberta (-2.8%).
Canadian retail sales dropped by 1.7% in January 2015. That was a larger decline than expectations for a 0.8% drop and built on a 1.8% decline (was -2.0%) in December and a 0.3% increase (was 0.4%) in November. A price-related 8.8% decline in gasoline sales, the seventh monthly drop in a row, accounted for much of the weakness; however, excluding gasoline stations, sales were still down by 0.8% in January. Auto sales declined by 1.8% in January, thereby marking a fourth consecutive monthly decline; however, earlier increases still left sales in that category up 6.2% from a year ago. Furniture store sales declined by 2.1%, and sales at sporting goods (-5.3%) and general merchandise (-1.1%) stores also declined, with partial offset from higher sales at electronics (3.8%) and building material (1.2%) stores.

Weakness in retail sales was widespread with sales down in nine provinces. The largest drop, in dollar terms, occurred in Quebec (-2.4%). Sales also declined sharply in Ontario (-1.4%), although almost entirely reflecting lower gasoline station sales, and Alberta (-2.8%).

Excluding the effect of prices, the volume of retail sales declined by 1.2%, building on a 1.2% decline in December that followed a 0.6% increase in November. The volume of sales is still up by 1.9% from a year ago but is down an annualized 6.9% relative to its fourth-quarter 2014 average.

The larger than expected decline in retail sale volumes in January built on an already large drop in December to leave the measure well below its fourth-quarter 2014 average. The weaker level of sales early in 2015 was disappointing and suggested that households are, as yet, not spending a significant portion of savings related to the almost 30% drop in gasoline prices since June 2014. We continue to expect spending to pick up, with the consumer sector on net benefiting from lower oil prices; however, today's sales report along with a much weaker than expected January wholesale trade report earlier this week, and on top of expected weakness in construction and drilling activity in the oil and gas sector in the month, suggested that GDP likely declined in January, with our monitoring pointing to a 0.2% drop. Although much of the weakness in wholesale and retail trade to date does not appear to be directly related to weaker activity in the oil patch, any rebound in activity in the eastern and central part of the country may well be delayed by the extreme winter weather in those regions in February. This suggests clear downside risk to our prior monitoring for a 2.0% annualized increase in first-quarter 2015 GDP, with growth potentially also coming in below the Bank of Canada's 1.5% estimate in the January Monetary Policy Report.