FXS: Retail sales: Gasoline bill dents spending in January
FACTS: Retail sales decreased 0.3% in January, a second consecutive monthly decline. Sales decreased in 7 of 11 retail industries. Motor vehicles and parts sales came down 1.5%, after decreasing 3.1% in December. Excluding motor vehicles and parts, retail sales were flat with the largest pullback registered by furniture & home furnishing stores (-2.3%), Gasoline stations (-1.4%) and Clothing & clothing accessories stores (-0.8%). This month’s best performers were general merchandise stores (+1.2%) and building material & garden equipment (+1.0%). On a regional basis, sales were down in 4 provinces. The strongest increase was observed in Saskatchewan (+3.0%) and in New Brunswick (+2.3%) while Quebec (-1.0), Ontario (-0.5%) and Alberta (-0.5%) lagged. In January, volume retail sales were down 0.6%, after decreasing 0.5% in December (top chart).
OPINION: This morning’s report is undoubtedly a weak one with nominal and volume sales down. The breadth was poor with 7 out of 11 components down and on a regional basis, a pullback was observed in the biggest provinces in the country. After a strong increase in motor vehicle sales in recent months, a normal decline was to be expected. However, excluding motor vehicles and gasoline, retail sales still managed to be up 0.3%. The gasoline bill for Canadian households surged by a whopping 58.6% annualized in Q4 and is already up 17.4% in Q1. As the middle chart shows, gasoline sales are roughly back to their 2008 peak when the price of oil reached $150 a barrel. With the manufacturing sector benefiting from positive developments south of the border and the Canadian labour market creating jobs, the gasoline bill should be offset going forward providing that there is no upward trend in the price of oil. Even if volume retail sales are down 1.5% annualized so far in Q1, we expect consumption in services to grow this quarter and to offset weakness from the goods side. Overall, we think a 1.5-2% growth in spending is achievable in Q1. Combined with strength in other GDP components, this would still lead to an above potential growth in real activity.
