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Retail sales grew by 0.9% month-on-month (m/m) in December, coming in stronger than Statistics Canada’s advance estimate of 0.8% m/m. In addition, November’s print was revised up to a flat reading from -0.2% m/m reported earlier, making today’s growth even stronger.

Adjusted for inflation, the volume of retail sales were up 0.8% in December from an upwardly revised flat reading in November (-0.2% m/m reported in the advanced estimate).

Sales at motor vehicle and parts dealers continued climb higher, registering a 1.9% m/m gain in December – the fourth consecutive month of gains.

Receipts at gasoline stations and fuel vendors were up 0.9% m/m, after a loss of 0.2% m/m in November.

Excluding sales at car dealerships and gas stations, core retail sales were up 0.5% m/m, following a upwardly revised decline of 0.4% m/m in November.

Contributors to today’s gains were general merchandise stores (+2.8% m/m), food and beverage stores (+1.5% m/m), and miscellaneous store retailers (+2.1% m/m).

Receipts fell for the rest of the categories, with furniture and home furnishings stores being the biggest drag with a reading of -5.1% m/m, following an upwardly revised gain of 3.8% m/m in November.

E-commerce sales continued to report a negative reading for the second month in a row, falling 3.6% m/m after an upwardly revised loss of 1.4% m/m in November (from -1.5 m/m, reported earlier).

Statistics Canada’s advance reading suggests that retail sales were down by 0.4% m/m in January (with 52.7% of companies surveyed providing responses).

Key Implications

Today’s report falls in line with our expectations for a rebound in spending in Q4, which in real terms is now tracking at a 2.3% pace (annualized). Zooming in on the details, the largest driver of this holiday season’s gain were auto sales, supported by pent-up demand and the recovery in auto production. Importantly, housing-related purchases remain weak, despite the recent uptick in the housing market.

Despite a rebound, 2023 has been marked as the slowest year for holiday sales since the pandemic began. Looking ahead, we anticipate rather tepid growth in consumer spending during the first half of the year. Consumers, facing higher costs, are becoming increasingly selective in their spending habits, which by itself might have prompted the Bank of Canada to adopt a more accommodative policy earlier. However, without a clear signal from the Bank of Canada that it is willing to disregard shelter inflation, a more restrictive approach is more likely. This makes a rate cut more probable in the second quarter of 2024.

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