Canada Retail Sales Fell 0.2% in March, Recover in April -- 2nd Update

By Robb M. Stewart

OTTAWA--Early signs consumers in Canada were spending again last month, snapping a run of sluggish retail sales through the first quarter, is unlikely to be enough to derail the central bank from shifting to cutting interest rates this year.

An early estimate of retail receipts by the government statistics agency points to a sizeable rebound in sales in April, though with Canada's population still growing rapidly and the jump in prices at the pump that month, economists expect sales on a volume basis will be less bubbly.

Statistics Canada's early read indicates sales increased 0.7% in April, the strongest increase in seven months.

That comes after sales in March fell 0.2% from the month before to a seasonally adjusted 66.44 billion Canadian dollars, the equivalent of about $48.39 billion, the data agency said. The result was weaker than the agency's prior forecast for essentially flat sales and the 0.1% dip forecast by economists. Compared with a year earlier, retail sales in March were up 1.9%.

The weakness in March was broad across retail categories, and would have been sharper if not for stronger trade by motor vehicle dealers and building material suppliers. Core sales, which strip out vehicle and parts dealers and gasoline stations, were down a sharper 0.6% from February.

"The broad-based nature of the weakness in retail sales in March show that high interest rates are weighing on demand and, at the margin at least, provide a bit more justification for the Bank (of Canada) to cut interest rates at the June meeting rather than waiting until July," said Olivia Cross, an economist at research firm Capital Economics.

The sales data from Statistics Canada is one of the last major economic indicators the central bank will gather before its next policy meeting early next month. The Bank of Canada has left its benchmark interest rate steady since last raising it in July to a more than two-decade high, though Gov. Tiff Macklem earlier this month said a cut was getting nearer as inflation continued to ease.

In volume terms, price-adjusted sales were 0.4% lower than in February. That hints at another headwind to industry-level gross domestic product for March after factory sales dropped 2% for the month on a price-adjusted basis.

With March marking a third consecutive monthly fall, nominal retail sales were down 0.2% in the first quarter of the year, a pullback from growth of 1.1% in the final three months of last year.

The first quarter was a mixed period for many well-known Canadian retailers.

Canadian Tire pointed to depressed consumer spending and a slight decline in traffic at its stores for the quarter as revenue fell roughly 5% from a year earlier. Clothing brand Roots saw lower sales due in part to weakness in cold-weather outerwear and accessories, but pet-goods retailer Pet Valu logged a rise in sales with growth in its franchise base. Among the big grocery chains in the country, Loblaw, Metro and George Weston each reported higher sales than a year ago even as consumers faced elevated food prices.

"Retail sales have softened meaningfully as Canadian households face elevated interest rates. While there are some signs that spending could recover in April from a lackluster March, any increases fall well short of torrid population growth," said Bank of Montreal economist Shelly Kaushik.

CIBC Capital Markets calculated that total sales for March were 2% below year-earlier levels on a per-capita basis. And while the advance estimate suggests strong sales last month, that will partly reflect a surge in prices at the pump, so volumes are likely to up by about half the pace to effectively only reverse the decline in March, CIBC senior economist Katherine Judge said.

Economists widely expect the Bank of Canada to pivot to trimming rates, but are divided on whether a first cut is likely at the June 5 policy meeting, or in July when policymakers will have further data to support the view the slowdown in inflation is sustainable. Canada's consumer price index rose 2.7% on an annual basis in April, the slowest pace in three years, and core indicators of inflation closely watched by the central bank also cooled.

Retail receipts for March showed retail sales were down in seven of nine retail segments tracked by the data agency, led by declines at furniture, home furnishings, electronics and appliances retailers. Canadians also spent less on food and beverages, and on clothing, accessories, luggage and leather goods.

Sales at motor vehicle and parts dealers were up for a second straight month, rising 1.0% thanks in sales of new vehicles.

Statistics Canada's advance estimate for April sales was based on responses of roughly 51% of retailers surveyed and will be revised.

Write to Robb M. Stewart at [e-mail]

(END) Dow Jones Newswires

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