CIBC Private Wealth
April 25, 2024
Money Financial literacy Economy Professionals NewsMorning Market Brief
For a second straight month in February, retail sales in Canada dropped. The tight financial conditions brought about by high inflation and the aggressive rate hikes by the Bank of Canada (BoC) appear to be weighing on Canadian households. Consumer demand has waned, which is hindering economic growth. The drop in retail sales could be another indicator pointing to potential rate cuts from the BoC as soon as this summer.
- Retail sales in Canada dropped by 0.1% in February over the previous month. This was the second straight decline in Canada’s retail sales after falling by 0.3% in January. A Bloomberg survey showed economists were expecting a 0.1% increase in retail sales.
- Of the nine sectors surveyed, five posted declines over February. Sales declined by 2.2% at gasoline stations. Sales also fell at furniture stores and for clothing and sporting goods. Canadians appear to be pulling back spending for more discretionary items.
- Looking ahead, Statistics Canada reported that retail sales were likely unchanged in March. Retail sales have been relatively lacklustre over the first quarter, which could have a negative impact on Canada’s gross domestic product growth.
- While the retail sales results have been a concern, it could prompt the BoC to begin cutting interest rates. Inflation has come down and economic growth has softened, which could have the BoC looking to help stimulate the economy.
The bad news is that the pullback in consumer spending could hurt economic activity. Conversely, evidence that tight financial conditions are weighing on Canadian households could result in a rate cut as early as this summer, which might relieve some pressure on Canadians. Investors are hoping that rate cuts could provide a tailwind for equity markets.
If you would like to discuss this economic and market update or have questions about your finances and investments, please feel free to contact me anytime.