CIBC Private Wealth
March 26, 2024
Money Financial literacy Economy Professionals Commentary NewsMorning Market Brief
Data from January showed Canadian retail sales dropped in January, the first decline in six months. Canadian consumers remained strong and helped push Canada’s overall economy higher, benefiting from a strong labour market and pent-up savings. However, that strength appears to now be stalling, which could weigh on economic growth this quarter.
- Statistics Canada (StatsCan) reported that Canada’s retail sales dropped by 0.3% in January compared to the previous month. January’s decline was the first since August 2023. Based on a Bloomberg survey, economists were expecting a 0.4% decline.
- A marked decline in sales at motor vehicles and parts dealers was a major contributor to January’s fall. Conversely, sales edged higher at sporting goods and garden equipment retailers.
- Looking ahead, StatsCan estimated retail sales might have ticked higher by 0.1% in February. This would be a second straight month of lacklustre retail sales results, suggesting tight financial conditions are putting pressure on many Canadian households.
- The Bank of Canada (BoC) has been mindful of consumer strength and spending patterns over the past several quarters. While a slowdown in consumer demand could help pull down inflation further, the BoC might be inclined to begin lowering interest rates based on the impact elevated rates are having on Canadian consumers. Market participants are widely expecting the BoC to begin cutting interest rates this year.
The Canadian economy appears to have entered a period where consumers are showing some weakness amid high borrowing costs and elevated inflationary pressures. Despite recent weakness, Canadian consumers have proven their relative resilience, helping to add to the relatively strong economic conditions that have prevailed in Canada over the past few years. Regardless, the BoC seems poised to lower interest rates this year, which has fuelled investors to push Canadian equities to new highs in 2024.
Please contact me to discuss how changes in Canadian retail sales might impact your portfolio.