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December retail sales gain likely won't last as StatCan sees January sales falling

Statistics Canada says retail sales rose 0.9 per cent to $67.3 billion in December, helped by strength in sales at new car dealers. Shoppers walk in downtown Montreal, Tuesday, Dec. 19, 2023. THE CANADIAN PRESS/Christinne Muschi

OTTAWA — Retail sales in December came in slightly stronger than economists were expecting, driven by strong sales for new cars and parts.

Statistics Canada reported retail sales rose 0.9 per cent to $67.3 billion in the month, while sales were up in five of nine subsectors.

For the full year, retail sales finished 2023 with a total of $794.4 billion — up 2.2. per cent from 2022.

Canadian retailers ended the year on solid footing, which was a tick above the advance estimate and consensus, said Katherine Judge, senior economist at CIBC Capital Markets, in a note to clients on Thursday.

"Sales in Q4 were overwhelmingly concentrated in autos, which accounted for 77 per cent of the quarterly increase," she wrote.

"That's being facilitated by an easing of supply constraints, which doesn't pose a risk to inflation from the Bank of Canada's standpoint."

Sales in the motor vehicle and parts dealers category gained for the fourth consecutive month. Within that subsector, sales at new car dealers rose 2.4 per cent, offsetting a 2.7-per-cent decline at automotive parts, accessories and tire retailers.

The auto sector has been under pressure from supply chain constraints for much of the COVID-19 pandemic and after. Now, pent-up consumer demand has boosted sales as cars are more readily available.

Judge said policymakers will be more concerned with spending in other categories.

Sales volumes were down in some key discretionary categories — clothing, sporting goods and furniture. Judge said it's a sign of weak demand that may have extended into January, based on the drop in the advance sales estimate.

Statistics Canada's early estimate for January sales pointed to a decrease of 0.4 per cent.

Core retail sales — which exclude gasoline stations and fuel vendors, as well as motor vehicle and parts dealers — were up 0.5 per cent in December.

Food and beverage retailers saw gains as well, driven mainly by a rebound in grocery, which was up 1.8 per cent.

"Food price inflation eased to the slowest pace seen in over two years in January, which could limit grocery store receipts in that month," Judge said.

On a provincial basis, she added, "sales were up in eight provinces, with Ontario and British Columbia seeing the largest increases, with the former tied to higher car sales and the latter to higher grocery store receipts."

"After consumer spending stagnated in the third quarter, it returned to a positive growth contributor in the fourth quarter, but we don't expect the momentum to last given the weak January advance estimate, as consumers are becoming more cautious with mortgages up for renewal," Judge said.

BMO Capital Markets economist Shelly Kaushik similarly noted the mixed bag of economic indicators with December's surprise to the upside being offset by a January that appears to be gloomier in tone.

"A perky retail sales report for December suggests Canadian consumers showed signs of strength to end the year," she wrote in a note to clients.

"However, a decline in January points to ongoing struggles amid elevated interest rates and still-above-target inflation."

This report by The Canadian Press was first published Feb. 22, 2024.

The Canadian Press

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