Auto sector drives growth as discretionary spending lags
Canada witnessed a modest uptick in retail sales in December that surpassed projections.
According to Statistics Canada, sales rose by 0.9% to reach $67.3 billion during the month, marking an improvement in five out of nine retail subsectors. The year concluded with a total retail sales figure of $794.4 billion, representing a 2.2% increase from the previous year.
Katherine Judge, a senior economist at CIBC Capital Markets, highlighted in her analysis that the final quarter’s sales were notably dominated by the auto industry, which contributed to 77% of the quarter’s overall sales growth.
This trend was particularly pronounced in the motor vehicle and parts dealers category. New car dealers experienced a 2.4% increase in sales, which helped offset a 2.7% decline in sales at retailers specializing in automotive parts, accessories, and tires.
Judge said growth in auto the sector was driven by the easing of supply chains issues, coupled with pent-up consumer demand. She also noted that this won’t likely impact inflation from the perspective of the Bank of Canada, as policymakers may be more focused on spending in other retail categories.
Sales in discretionary spending categories such as clothing, sporting goods, and furniture have declined in December.
The decline in these categories could also continue to January, Judge noted, citing a preliminary estimate from Statistics Canada indicating a 0.4% drop.
Meanwhile, core retail sales, excluding gasoline stations and fuel vendors as well as the motor vehicle and parts dealers, witnessed a 0.5 % increase in December. Food and beverage retailers saw similar gains that were primarily caused by a 1.8% rise in grocery sales.
However, Judge said the slowing pace of food price inflation in January might impact grocery store revenues for the month.
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