Retail sales increased 2.5% to $69.6 billion in December. The nine sub-sectors saw sales rise, driven by higher sales from food and beverage retailers and auto and parts retailers.
Core retail sales which excludes petrol stations, fuel dealers and auto and parts dealers – rose 2.5% in December. In terms of volume, retail sales rose 2.5% in December.
Retail sales increased by 2.4% in the fourth quarter of 2024, marking the second consecutive quarterly increase. In terms of volume, retail sales rose 1.8% in the fourth quarter.
Also In 2024, retail sales increased by 1.3%, driven by higher sales of car and parts dealers. In terms of volume, sales increased by 0.7% in 2024.
Rising core retail sales
After falling 1.0% in November, core retail sales rose 2.5% in December, driven by higher F&B store sales (+3.5%). The increase in this sub-sector was led by gains in supermarkets and other grocery stores (excluding small retailers), which rose 3.9% in December, after falling 2.0% in November. Higher revenues in beer, wine and alcoholic beverages (+3.9%) and specialty food stores (+2.4%) in December also contributed to increased sales of food and beverage stores.
Sales increased in general goods stores (+3.2%) and apparel and accessories, footwear, jewellery, luggage and leather goods stores (+3.1%) in December.
Car and parts dealers’ sales increased (+1.9%) in December, supported by a rise in new car dealers’ sales (+2.0%), which rose for the third consecutive month. Sales increases were also recorded at auto parts, accessories and tires dealers (+4.7%) and used car dealers (+3.2%).
Market Reaction to Retail Sales in Canada
The unexpected decline in retail sales of the Canadian dollar sent waves through financial markets, particularly affecting the Canadian dollar and stock indices. Following the announcement, the Canadian dollar saw a significant decline against major currencies. Investors often interpret low retail sales as a sign of weakening consumer confidence, which can lead to lower spending. This sentiment was evident as the dollar slipped against the US dollar, as traders adjusted their positions to take into account what they see as a potential slowdown in economic growth.
The stock market also felt the fallout from this disappointing data. Discretionary consumer goods stocks, which are particularly sensitive to changes in retail sales, were affected. Companies that rely heavily on consumer spending, such as retailers and service providers, saw their share prices fall. Analysts attributed the decline to concerns that the continued decline in retail sales would lead to lower corporate profits and, therefore, a less favorable investment climate. Reflect the general bearish sentiment in the market A cautious approach among investors, who warn of the effects of this economic data on future growth prospects.
We will explore the effects of these figures on the market, the potential consequences of monetary policy, and what analysts expect for the coming month. Moreover, the bond market responded in the same way, as yields on Canadian government bonds fell as investors sought safer assets amid heightened uncertainty.
The combination of weak retail sales and a fall in the Canadian dollar has prompted many investors to reassess their expectations for future interest rate hikes by the Bank of Canada. Market participants now increasingly expect the Bank of Canada to adopt a more accommodative stance in response to slowing consumer spending, which could further affect bond yields and overall market dynamics.
Forecast for the current month on retail sales in Canada
Looking ahead, the outlook for the CAD retail sales figures for the current month is mixed. Economists and analysts are cautiously optimistic about the prospect of a rebound from the previous month’s disappointing data.
However, various factors may influence consumer spending patterns, making it difficult to predict the outcome with certainty. While some indicators point to a possible recovery, others point to ongoing economic challenges that may continue to affect retail sales.
Consumer sentiment plays a crucial role in retail performance, and recent surveys suggest that Canadians feel increasingly uncertain about their financial prospects. Factors such as inflationary pressures, rising interest rates, and geopolitical tensions
Canada’s disappointing core retail sales figures are likely to have significant implications for the Bank of Canada’s monetary policy decisions. Central banks are closely watching retail sales as a key indicator of the health of the economy, and the contraction in this sector raises concerns about the sustainability of growth. The Bank of Canada has a dual mandate: to maximize employment and keep inflation at a target level. A slowdown in consumer spending could jeopardize both targets, as lower demand could slow job growth and lower potential inflation..
Given the actual reading at -0.7%, analysts now speculate that the Bank of Canada may consider delaying any further rate increases, which were expected in light of previous economic indicators.
The bank’s recent monetary policy data indicated its willingness to respond to changing economic conditions, and lower retail sales could act as a catalyst for a more cautious approach. With signs of weakness already showing signs of economic growth, the Bank of Canada may prioritize supporting consumer spending through accommodative monetary policy.
