Canada Retail sales fell 0.2% in March as spending declined across sectors

Author: Promit Mukherjee

OTTAWA (Reuters) – Canadian retail sales fell for a third straight month, missing expectations, data showed on Friday, underscoring weak economic growth and the impact of high interest rates on consumer spending.

Retail sales fell 0.2% in March as consumers reduced purchases of furniture, home furnishings, electronics and appliances, Statistics Canada said, adding that sales fell 0.2% in the quarter ended March 31.

Analysts polled by Reuters did not forecast any changes in retail sales compared to February.

Preliminary estimates for April sales showed sales likely to increase by 0.7%, but that data comes from only half of the total respondents who are typically surveyed and susceptible to revision, Statscan said.

“The weakening momentum over the quarter reflects consumer caution about mortgage renewals at higher interest rates, and sales look even worse on a per capita basis, with volumes well below year-ago levels,” Katherine Judge, director and senior economist at CIBC Capital Markets, the memo said.

She added that while April sales are showing a jump, that is partly due to higher gasoline prices.

Statscan said sales fell to C$66.4 billion ($48.41 billion), impacted by declines in sales in seven of nine subsectors.

In volume terms, sales in March decreased by 0.4%.

The Bank of Canada (BoC) is likely to cut interest rates once it announces its monetary policy decision on June 5, as the continued decline in inflation and weak growth provide further evidence that core inflation is likely to be subdued.

Friday’s sales data will likely provide further evidence that the economy is losing momentum in the face of a nearly 23-year-high interest rate of 5%.

Money markets lowered their stance on an interest rate cut in June to 58% from 60% after the release of retail sales data.

The Canadian dollar was 0.15% stronger in early trading at C$1.3709 against the U.S. dollar, or 72.94 U.S. cents.

Core retail sales, which exclude gas stations and fuel retailers and motor vehicle and parts dealers, fell 0.6% in March, recording the first decline in core retail sales in four months, the statistics agency said.

The strain on consumer spending was also seen at food and beverage retailers, whose sales account for almost a fifth of total retail sales. Statscan data showed a decline of 0.4% as customers spent less in supermarkets and grocery stores and on alcohol.

The only two sectors that contributed to sales growth were motor vehicle and parts retailers and construction materials and related equipment.

Motor vehicle and parts dealers, which account for more than a quarter of total sales, grew 1%, and this growth was boosted by consumers buying new cars, which contributed to a 1.1% increase in dealer sales.

($1 = 1.3715 Canadian dollars)

(Reporting by Promit Mukherjee and Dale Smith; Editing by Chizu Nomiyama and Nick Zieminski)