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Economic News

Canada: After a Soft Q1, the Slide in Retail Sales Could End in April

May 24, 2024
Florence Jean-Jacobs
Principal Economist

Highlights

  • Canadian retail sales fell 0.2% m/m in March, a third consecutive monthly decrease. This is lower than Statistics Canada’s earlier flash estimate (0.0%) and the consensus of economic forecasters (-0.1%). The table below summarizes key data points.
  • The decline was marked by particularly soft core retail sales—excluding motor vehicle and gasoline sales—which dropped 0.6%. This is the first decline in four months.
  • The second consecutive monthly increase in motor vehicle sales (+1.0%)—driven by new car dealerships—did not compensate for the pronounced drop in core retail sales in March. 
  • Sales at gasoline stations were down in both nominal and volume terms.
  • In volume terms, retail sales continued to fall, down 0.4% in March, after a 0.2% drop in February (graph).
  • Retail sales were down in six provinces. Ontario sales fell 0.3% while Quebec experienced a 0.6% increase.
  • Overall, Q1 saw a 0.2% decrease in nominal retail sales, while volumes managed to edge up 0.3%.
  • Statistics Canada’s flash estimate for April nominal retail sales points to a 0.7% monthly growth. Goods prices did rise over the month, but the April flash suggests that much of the increase is coming from a rebound in volumes. 

Implications

As anticipated, the weakness in the Canadian economy continues to be apparent, and we expect it to continue in the coming months (see our latest Economic and Financial Outlook External link.). The drop in sales of furniture and appliances as well as non-essential items like sporting goods and electronics is particularly striking in the March retail release. This suggests that Canadians may be choosing to put off certain categories of spending, due to the still-high interest rate environment combined with depleted savings for some households.

In parallel, annual population growth is continuing to pick up speed, and is outstripping growth in retail sales by a large margin. On a year‑over‑year basis, population aged 15 and up grew 3.2% in March while nominal retail sales were up 1.9% and volumes grew by 0.8%.

This underlying weakness in per capita spending is made clear by Q1 results. On an annualized q/q basis, the first quarter saw both nominal and real per capita retail sales drop (by 4.2% and 2.4%, respectively), based on population aged 15 and up.

We believe lower inflation in April and slightly weaker tracking for Q1 real GDP growth than the Bank of Canada’s (2.2% annualized versus 2.8%, respectively) is supportive of a rate cut in June. This will provide some relief to households. Moreover, after a mediocre Q1 in retail sales, Statistics Canada’s estimate for April points to a potential rebound. Due to other indicators coming fairly strong, our tracking suggests real GDP growth is likely to be in line with the Bank’s 1.5% projection in Q2. Taken together, this points to a respectable first half of 2024, with a possible tailwind from less restrictive monetary policy thereafter. 

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.