Retail spending growth slows
June 22, 2011 - Canadian retail sales eked out a disappointing 0.3 per cent gain in April in a further indication that record-levels of consumer debt are dampening the domestic economy. The gain to $37.4 billion in sales was below consensus and comes off a downwardly revised March, when sales were recalculated to show a 0.1 per cent slip.
Analysts noted the consumer sector was a drag in the first quarter of the year, and April's data suggests households aren't in any mood, or in a financial position, to add much of a punch to the economy in the second quarter either.
The mild positive was that in volume terms, sales increased 0.2 per cent, although they are still on track to decline from the first quarter because of the weak handoff.
And Alberta, where the economy is strong due to high oil prices, posted a large 1.6 per cent increase in sales with widespread gains across store types.
Analysts said higher gas prices and weather were likely contributors to the soft sales in most regions.
"Canadian consumer spending is clearly losing some momentum,'' said economist Douglas Porter of BMO Capital Markets. "While consumers have not folded up their tents, they're not in the mood to buy new ones either.''
The pace in annual growth in retail sales has cooled to 3.6 per cent, from as high as 6.5 per cent late last year, he noted.
The big contributors to growth in April were autos, up 1.7 per cent, gas stations, up 0.5 per cent, and furniture and home furnishing stores, up 3.2 per cent.
But building material and garden equipment and supplies dealers registered a large 2.8 per cent decline, which was partly weather-related. Electronics and appliance stores fell 1.2 per cent, and general merchandise stores dropped 0.3 per cent.
TD economist Leslie Preston said it is unrealistic to expect household spending to continue to drive economic growth. Consumers sustained the economy as world demand for exports collapsed during
the recession, but they are paying the price now, she said.
"Canadian consumers are currently shouldering record levels of debt relative to their incomes,'' she explained.
Statistics Canada reported Monday that household credit market debt climbed to a new high of 147.3 per cent of disposable income in the first quarter, about the highest it's even been in Canada since records began being kept, and the debt-service ratio also edged higher. On top of that, higher gas prices are taking up a larger slice of Canadian disposable income, analysts said.
The good news in the picture is that debt servicing is unlikely to be impacted by higher interest rates any time soon.
Despite recent warnings by Bank of Canada governor Mark Carney that interest rates have only one way to go, the slowdown in household spending, along with other weak economic indicators, pose little danger to the tame inflation outlook.
Last week, the TD Bank joined a short list of forecasters who suggested Carney may not move on interest rates until next year. The consensus of economists now points to the fall, but many in that camp concede the risk is to later, rather than earlier.