TORONTO — Canadian shoppers’ reluctance to open their wallets in April points towards slower economic growth for the rest of the year, but not the start of a serious downward trend in consumer spending, economists say.
“We usually look beyond the one-month dip, we look at the longer term trend and conditions are still present for Canadian consumers to continue to spend,” said CIBC economist Krishen Rangasamy.
Retail sales decreased to $36.2 billion in April, down two per cent from the previous month after a gain of 2.2 per cent in March from February, according to Statistics Canada figures released Wednesday.
The year-to-date retail sales are still up compared with the first four months of 2009, which Canada was in the grips of a major recession.
The month-to-month drop in April was several times larger than economists had projected, largely due to extra buying in March that skewed sales figures.
“We saw a weather-induced shopping spree in March. We saw clothing just rise significantly and it was inevitable you were going to see a decline (in April) because Canadians had brought forward a lot of their purchases of clothing and shoes and all those seasonal items,” Rangasamy said.
Statistics Canada said 10 of 11 retail subsectors and in all provinces showed declines in April, following an overall upward trend since the beginning of 2009.
The only subsector to register a gain was electronics and appliance stores, where sales increased 0.6 per cent. Among the notable declines was a 5.3 per cent drop for new-car dealers and a 5.2 per cent decline in sales at clothing and clothing accessories stores.
BMO Capital economist Douglas Porter attributed the decline primarily to reduced sales volumes, which fell by 1.9 per cent after a 2.3 per cent spike in March.
TD Economics saw the numbers somewhat differently, though, saying lower prices for gasoline were also a factor — although it agreed that the retail numbers were affected by lower sales volumes.
“In addition to a price-induced decline in gasoline store sales, a major pull-back in sales at motor vehicle and parts dealers (-4.8 per cent) was the greatest culprit behind the sales drop in April. Excluding these two auto-related areas, retail spending fell a more muted one per cent compared to March,” TD economist Derek Burleton wrote.
The economists said April’s numbers weren’t a major concern but likely signalled a somewhat slower pace of growth for the Canadian economy compared with the robust first quarter of 2010 and fourth quarter of 2009.
Even April was up compared with the same month of 2009, when the economy was still near the bottom of the 2008-09 recession. Overall retail sales for the country were up 6.6 per cent from $33.9 billion in April 2009.
But the Canada economic growth is widely expected to slow down in the second quarter and for the rest of the year from the unusually strong 6.1 per cent in the first quarter.
The once-hot housing market is already showing signs of cooling and statistics, including GDP growth and spending figures, reported later this year will compare less favourably to a strong second half of 2009.
Burleton said April’s retail data suggest that growth in consumer spending likely moderated in the second quarter, which ends June 30, after an “oversized gain” of 4.4 per cent in the first quarter.
TD remains confident the economy expanded by a strong 3.5 to four per cent in the second quarter as a whole but said the race to beat out low interest rates earlier this year has probably brought sales forward from the future and sapped pent-up demand.
CIBC revised its forecast for GDP growth in April down slightly from a projected 0.2 per cent increase to no change after the retail figures were released. However, the bank still predicts growth of three per cent for the second quarter.
Entering the second half of the year, a new tax regime in Ontario and B.C. could drive higher consumer spending figures in June in advance of the July 1 implementation date, Rangasamy said.
“We might see a big boost in June and then a dip in July, but having said that consumers still have to spend it doesn’t mean a dip in July and continual decline after that,” he said.
That’s because conditions are still favourable for Canadians to spend. The labour market is improving and household incomes continue to rise. Meanwhile, interest rates, which can affect purchases of big ticket items such as automobiles and appliances, are expected to rise only gradually.
“Those lead us to believe there’s still room for consumers to contribute to GDP this year,” Rangasamy said.
“It might be at a slower pace because we think the economy’s going to slow down towards the end of the year, but consumers are still going to be big contributors to GDP.”