Canadian Motor Vehicle Sales Expected to Give Back Some Earlier Gains

Today's Canadian data calendar is relatively light with only motor vehicle sales and the first-quarter Business Outlook Survey out. Based on preliminary industry data, motor vehicle sales likely declined in February according to Statistics Canada. Our estimate sees sales falling 2%, giving back some of January's massive 8.2% gain that was fuelled by increased incentives and the GST cut. A moderation in vehicle sales in February would imply similar softness in retail sales. However, given January's stellar 1.0% gain in retail sales following December's solid 0.7% advance, it appears likely that consumer spending growth will post another strong quarter in the first quarter. Our forecast sees spending growth clocking in at a 3.8% annualized pace, building on the fourth quarter's robust 7.4% increase.

The Business Outlook Survey for the first quarter is also out today. In the fourth-quarter survey, conducted between November 15th and December 14th, businesses remained positive despite increased uncertainty about the economic outlook and the volatility of the Canadian dollar. The percentage of firms reporting difficulties meeting an unexpected increase in demand - considered an output gap proxy by the Bank of Canada - increased to its highest level on record. In the first-quarter survey, it would be reasonable to expect some moderation from the record percentage reported in the prior report. The Canadian dollar continued to hover around parity in February and March, which may have continued to be a cause of concern for firms. Also, with rumblings of a recession in the United States, increased concern about the outlook is likely in this report.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.