Canadian Retail Sales Disappoint

Canadian retail sales slumped in April, marking the first month in four that sales fell. Sales dropped 0.8%, defying forecasts for a 0.1% increase. In volume terms, sales were also weaker, falling by 0.6%, which largely reversed March's 0.7% increase.

Five of the seven major retail sectors showed slower sales with sales of passenger vehicles falling, while purchases at gasoline service stations sagged. In the automotive sector as a whole, sales were off 1.9% in April. Sales of food, furniture and clothing all posted declines. Partially offsetting this weakness was a pick-up at general merchandise stores.

Retail activity was disappointing in April, although the pick-up in the volume of manufacturing sales and wholesale trade still points to the first increase in overall economic output in nine months, albeit a modest one. The ups and downs in the data are consistent with another weak quarter, with our forecast calling for real GDP to contract at a 3.2% annualized pace, slower than the first quarter's sharp 5.4% drop but still showing that the economy remained in recession.

Like other global economies, we watch for the green shoots in the Canadian data to blossom into something more tangible, with stirrings in the housing market, the improved tone in financial markets and the flow of government stimulus expected to assist Canada's economy's recovery to take hold later this year.

The Bank of Canada's forecast anticipated that consumers would pull back in 2009 and, although today's data was disappointing, it is unlikely to take policymakers away from their current course of holding the overnight rate at an extraordinarily low level but staving off a move to providing more stimulus through quantitative, or credit easing, policies in the near-term.

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.