Canada: Retail sales declined 0.5% in December – RBC Economics

Nathan Janzen, Senior Economist at RBC Economics, notes that the December decline in Canadian retail sales was the first in five months and was weaker than market expectations for a flat reading.

Key Quotes

“Lower nominal sales were despite a large increase in gasoline prices.  Volume sales declined a larger 1.0% in December to partly retrace gains over the prior five months.”

“Sales at automobile dealers declined 2.5% in December, largely in line with an earlier-reported drop in unit vehicle sales in the month following an outsized sales pace in November (sales of motor vehicle and parts were still up 3.9% from a year ago in December).  Less-expected was the extent of broadly-based weakness elsewhere.  Sales at gasoline stations were the main exception; however, the 6.6% rise in spending at the pump looks to have been largely attributable to an increase in prices.  Excluding the motor vehicle and gasoline station components, sales declined 1.4%, marking the third decline for that component in the last four months.”

“Our Take:

• The pull-back in retail sales volumes in December was broadly expected given an earlier-reported drop in unit vehicle sales from record high levels in November and only partially retraced the cumulative 2.3% gain over the prior five months.  Sale volumes still rose an annualized 4.5% in Q4 as a whole (and were up 3.0% on a year-over-year basis in December) which is broadly consistent with our call that overall consumer spending (including services spending not captured in the retail report) rose at a 2 1/2% rate in the quarter.
• In terms of overall GDP implications, the monthly pull-back in December retail volumes follows earlier reported gains in wholesale (+0.9%) and manufacturing (+2.3%) sale volumes in the month.  Along with increasing indications that activity in the oil & gas sector is bottoming out (oil & gas drilling rig counts were above year-ago levels in December for the first time since December 2014), data to-date remain in line with our monitoring for a 0.2% gain in GDP in December that would build on the 0.4% rise in November and further recover from the disappointing, and surprising, 0.2% pullback in October.  That remains consistent with our call for a 1.8% GDP gain in Q4 as a whole.”