Canadian Retail Sales Rise - but Still Point to Soggy Quarter for Consumer Spending

Canadian retail sales rose again in March for the third consecutive month. Sales increased by 0.3%, just shy of forecasts for a 0.5% rise. In volume terms, sales rose by 0.7%. The increase in March was largely driven by higher auto sales; excluding the automotive sector, sales were 0.2% lower than in February, a marginally bigger dip than forecast.

Higher sales of new cars (+3.6%) were supplemented by rising purchases of food and at pharmacies and general merchandise stores in March, but sales were down in most other major spending categories. Sales at gasoline service stations flagged in March because gas prices fell on a seasonally-adjusted basis in the month.

Increases in retail sales activity in recent months have not been not strong enough to offset the sharp declines in the fourth quarter. We expect that consumer spending contracted in the first quarter. Also, while retail spending picked up pace in March, other segments of the economy failed to perform, raising the risk that real GDP in March fell more than February's modest 0.1% decline. Our monitoring points to a severe 6.5% annualized drop in real GDP in the first quarter with the Bank of Canada looking for an even more aggressive 7.3% plunge.

The weakness in the Canadian economy echoes the performance of many of its trading partners where large decreases in output have already been reported. Looking forward, we expect that the extraordinarily low interest rates combined with upcoming fiscal stimulus will see the pace of decline moderate. In the second quarter, however, the economy likely remained entrenched in recession waiting to see if any green shoots materialize.

RBC Financial Group
http://www.rbc.com

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.