OTTAWA — Canada’s consumers ended 2010 on a miserly note, adding some uncertainty about the strength of the economic recovery.
Retail sales edged down 0.2 per cent to $37.3 billion in December — sales volumes fell 0.4 per cent — likely indicating a less than stellar month in terms of gross domestic product.
But some analysts weren’t ready to scale back their recent revisions on Canadian GDP estimates. The consensus calls for fourth-quarter growth to come in at three per cent, and an even stronger start to 2011.
Bank of Montreal economists said Tuesday they were sticking to a prediction that the economy expanded by three per cent annualized in the last three months of 2010 — far better than the Bank of Canada’s earlier 2.3 projection.
There were extenuating circumstances for the drop in sales, the economists said, including the cold weather. But the prime reason may be simply that consumers did their Christmas shopping in November, taking advantage of deep discounts.
“Things ended 2010 on a little sour note but in the quarter as a whole, sales were still quite solid,” said Douglas Porter of BMO Capital Markets.
“Keep in mind that a lot of Canadian retailers tried to match their U.S. counterparts with so-called ’Black Friday’ discounts, and that may have pulled some sales forward (into November instead of December).”
He notes that Statistics Canada revised its November sales data up from an already strong 1.3 per cent to 1.5 per cent. For the quarter, sales in volume terms were up 5.1 per cent annualized, and sales improved 4.5 per cent for the year as a whole.
But other observers saw the fourth quarter as chiefly a November surge, followed by a weak December.
Scotiabank economist Derek Holt noted that, along with retail sales, real manufacturing shipments, housing starts, and hours worked all turned negative during the last month of 2010.
“One cannot rule out a negative print for December GDP growth over November and that would erode some of the mild confidence (for the economy),” Holt said.
The big negative in December retail data was as expected new auto sales, which fell 2.7 per cent, ending a series of seven straight monthly gains. Excluding autos, sales rose 0.6 per cent, but most of that was due to higher gasoline prices.
CIBC economist Emanuella Enenajor noted that Statistics Canada has already reported that auto sales were on the mend in January, rising three per cent.
Other signs point to improving prospects for the economy, particularly the strong rebound already underway in the United States, which should lift exports boats in Canada.
On Tuesday, the Conference Board in the U.S. said its latest tracking shows America consumer confidence rose to the highest point in three years in February, a sign households are feeling more positive about their income prospects and the economy’s direction.
With almost all major Canadian 2010 economic indicators now in, Porter says there is unusual uncertainty among economists about what the final quarterly GDP report will show when Statistics Canada reports next Monday.
“Frankly there’s a little bit of a mismatch between what the monthly numbers are telling us about the quarter and what the spending numbers are suggesting, and I tend to put more stock in the spending numbers,” Porter said.