Canada retail sales remains strong, but consumer spending likely to slow down

Retail volumes in Canada continued post solid growth in February after recording major gains in January, when retail sales grew 2.1% in terms of both volume and price. Canadians seem to be spending again after a weak end to 2015. Looking at February’s retail sales data, Canadian economy is expected to have recovered in Q1 2016, according to TD Economics.

In February, retail sales rose 0.4% to $44.2 billion, an all-time high. Lower gasoline prices restricted the level of sales. Stripping this sector, sales rose 1% m/m.  Retail sales in terms of volume rose strongly by 1.5%.

Retail sales grew in 9 of the 11 subsectors in February. Motor vehicle and parts category sales grew 1%, while clothing and accessories rose 2.7%. Meanwhile, food and beverage store category grew modestly by 0.2% as a growth in other subcategories countered a drop in supermarket sales. Gasoline stations’ sales declined for the eighth consecutive month, dropping 4.9%, a six-year low. This category is weighed on by past drop in oil prices.

The indications are for a solid start to 2016, with the Canadian economy expected to have grown 3% or more. But on a longer trend, the economy is likely to record a moderate growth of about 2% every quarter, according to TD Economics. As the structural adjustment continues to lower oil prices, consumer spending is likely to decelerate in Canada, added TD Economics. The economic growth is the likely to be further restrained.

“The net result is an economy likely to only modestly outpace its (already low) potential running speed”, said TD Economics.

This outlook needs the monetary policy to be in place, strengthening the possibility that the Bank of Canada will keep its interest rate unchanged at 0.5% for some time, noted TD Economics.