Canadian Retail Sales Fell 0.5% In April

Canadian retail sales fell 0.5% in April, well below consensus expectations (top chart). There were lower sales in 8 of the 11 subsectors. Auto dealership revenues fell 1.2%. But even excluding autos, retail sales were weak, falling 0.3%. Declines in sales of building materials, electronics and furniture more than offset gains elsewhere, including the 1.1% increase in gasoline sales and 1.9% gain in health/personal care store sales. There was a two-tick upward revision to the prior month's ex-autos sales growth to +0.3%. More importantly for April GDP, retail volumes fell 0.8% in the month. Looking at provinces, Alberta continues to lead the nation with retail sales up 7.8% from April last year, well ahead of Central Canada (Quebec at 2.5% y/y and Ontario at 2.4% y/y).

Opinion: April's retail report was much weaker than expected, even considering the upward revisions to the prior month. The weakness can be partly attributed to still elevated gasoline prices ― in April the share of gasoline in total retail sales rose to 12.7%, the highest in six months.Consumers got some relief at the pumps in May and June, and that may be reflected in better retail reports for those months. That said don’t expect miracles from the Canadian consumer. Consumer credit growth (year-on- year) is the lowest in almost two decades and the savings rate is at its lowest since 2007 (middle chart).

Note that real consumption growth was below 1% annualized in Q1, the lowest in three years and April's retail report suggests that consumer weakness extended to the second quarter. With just one month of data, Q2 retail volumes are now tracking an annualized growth rate of -3.1%, the weakest since Q1 of 2009. (bottom chart). The weak retail volumes combined with earlier reported weakness in real manufacturing will somewhat offset the reported strength in wholesaling, limiting April GDP monthly growth to around 0.1%.