By Robb M. Stewart
OTTAWA--The continued hesitancy of Canadians to spend, with retail sales flatlining last month after a second monthly decline in a row, supports expectations the central bank cut begin cutting interest rates as early as June.
An advance estimate of retail receipts indicates sales were unchanged in March, Statistics Canada said Wednesday.
That comes after sales in February edged down 0.1% to a seasonally adjusted 66.73 billion Canadian dollars, the equivalent of about $48.8 billion, the data agency said.
The monthly dip was softer than the modest 0.1% advance forecast by Statistics Canada and by economists, and follows a 0.3% pullback in January sales in a further sign of the strain on Canadian household budgets from high interest rates. February's decline, led by a drop in trade at gas stations and fuel vendors, would have been even sharper if sales at motor vehicle and parts dealers hadn't recovered from weakness the month before when vehicle production was disrupted by retooling at some production plants.
"Spending will remain under pressure with the unemployment rate rising and mortgages continuing to renew at higher interest rates," said Katherine Judge, senior economist at CIBC Capital Markets, who is among analysts expecting the Bank of Canada to begin cutting its benchmark interest rate at its next policy meeting in early June.
Sales in February were down in five of nine retail segments tracked by the agency. Receipts at gas stations and fuel vendors were down 2.2% for the month, even as motor vehicle dealers saw a 5.1% jump in sales. Core sales--which strip out gas stations, fuel vendors and vehicle and parts dealers, were flat in February.
In volume terms, price-adjusted sales fell 0.3% from January, with a sharp fall in gasoline and fuel volumes. That suggests a modest headwind to industry-level gross domestic product, which Statistics Canada had previously projected grew for a second month running with a 0.4% increase in February.
The economy is still tracking growth for the first quarter, though there are signs of pressures. Factory sales rose 0.7% in February, and edged up 0.1% in volume terms from the month before, but a flash estimate of manufacturing shipments released Wednesday points to a 2.8% retreat in nominal sales in March.
After stalling in the second half of last year, economic activity in Canada has picked up. The central bank, which this month for a sixth policy meeting in a row left its policy rate unchanged at a more than two-decade high, has forecast growth will accelerate this year, thanks in part to soaring population growth and a recovery in household spending. Many economists anticipate a first rate cut is on the horizon as inflation continues to cool and with the unemployment rate rising to its highest level in year.
Retail receipts for February showed Canadians spent more at general merchandise retailers and, to a lesser extent, health and personal care stores. However, that was countered by a drop in sales of home furnishings, electronics, clothing and sporting goods, a sign of weakening discretionary spending.
"The big picture is that disappointing growth in sales volumes means that consumption growth is likely to have slowed in the first quarter," Olivia Cross, North America economist at research firm Capital Economics, said. "That reinforces our view that the Bank of Canada is likely to cut interest rates at the next meeting."
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
04-24-24 1122ET
