Canadian retail spending was down 0.5% in December, well below consensus which called for a flat reading. The decline was even heftier, at 1% in volumes terms, as Canadians pulled back on gift buying last year.
The biggest driver in the decline in retail sales was a 9% drop in motor vehicle sales – not your typical Christmas gift, unless you are on Santa’s really good list. But, even after excluding sales of vehicles, parts, and gasoline stations, spending was down a sizeable 1.4% in December – a third contraction in the last four months of 2016. The decline was fairly broad based across your typical Christmas shopping categories, led by health and personal care stores (-4.1%), clothing and clothing accessories stores (-3.7%), beer, wine and liquor stores (3.6%) and general merchandise stores (-1.3%). Sales also slumped across in the luxury-segment of jewellery, luggage and leather goods stores (-12.4%).
Ultimately, December’s decline in retail sales is coming on the back of four months of hearty gains, and despite the pullback the consumer remained a main driving force for Canadian economic activity in the fourth quarter of 2016. Motor vehicle sales are still near record high levels, a good sign that Canadian consumers are feeling pretty optimistic about future employment and income prospects.
The December report highlights changing patterns in consumer behaviors. Canadian consumers seem to be spending more on cars and housing related items, while shying away from other discretionary spending – including luxury items.
With the economy continuing to churn out jobs, interest rates still historically low and rapid home price growth continuing to boost household wealth across parts of the country, consumers are likely to make a comeback in the early months of 2017, but the support will not be as pronounced as in prior years.