A Cooler February for Canadian Retail Sales April 24, 2024

The February release came in cooler than anticipated. While some elements were to be expected, such as subdued demand for non-essentials and things like furniture and appliances, others were somewhat surprising. The sharp drop in gasoline sales was unexpected, although there is considerable monthly volatility in this category. As for motor vehicle sales, it looks like automobile dealerships maintained a fairly slow pace of sales, while other recreational vehicles led the upside move.

One thing is clear: given the record-high population growth in Q1, this morning's retail print-including the decline in volumes-suggests per-person spending was even weaker than implied by the headline figure. We'll be watching the March data closely. If the flash estimate proves correct, nominal retail sales likely stalled in Q1 (+0.1% q/q annualized) but declined by 3% on a per capita basis (q/q annualized, population ages 15 and over).

Still, January and February retail showed pockets of resilience. And with other data coming in hot in the last few weeks, our tracking suggests real annualized growth in the range of 2.5% to 3% annualized in the first quarter of 2024. That's in line with the Bank of Canada's latest forecast of 2.8%.

Combined with inflation data pointing to further normalization in consumer price growth in March, two monthly declines in retail sales to begin 2024 suggest the Canadian economy is continuing to weaken in response to higher interest rates. Consequently, we remain of the view that the Bank of Canada is set to reduce its policy rate in June.