Canadian retail sales post surprise drop, falling most this year

Retail sales unexpectedly fell in October, declining for the first time in four months as consumers bought fewer motor vehicle and parts.

Canadian retailers sold 1.2-per-cent fewer goods in October, the biggest monthly drop this year, Statistics Canada said Friday in Ottawa. That widely missed the median forecast in a Bloomberg survey for a 0.5-per-cent gain. Excluding motor vehicles, retail sales dipped 0.5 per cent, also missing the median forecast.

In volume terms, which strip out the effects of price changes, October sales decreased 1.4 per cent, meaning they will contribute negatively to quarterly output.

The report follows other indicators that have missed forecasts, including jobs and factory sales, potentially signalling a more significant slowdown in the fourth quarter than anticipated by the Bank of Canada.

“With headline inflation expected to ebb in 2020, ‘insurance’ rate cuts from the Bank of Canada remain live in the first half as we expect trade-related uncertainty to remain pronounced,” Brett House, deputy chief economist at Bank of Nova Scotia in Toronto, said in a note to clients.

Friday’s disappointing retail print raises concerns about the health of the consumer and to what extent debt levels and uncertainty are weighing on consumption.

“The fact that all three major inputs into monthly GDP — manufacturing, wholesaling & retailing — were down this week, means that the quarter will be starting on soft footing,” Royce Mendes, an economist at CIBC World Markets, said in a note to investors. “The big headline miss will be bearish for the loonie and bullish for fixed income.”

Retail sales in Canada are on pace for one of their worst years on record for growth, and Friday’s report on October data showed broad-based declines, with eight of 11 subsectors lower on the month.

Lower sales at motor vehicle and parts dealers contributed most to the monthly decline; weakness was broad-based in the sector, and was led by new car dealers down three per cent and used car dealers down 5.2 per cent.

Retail sales fell 0.6 per cent in October from a year prior, the largest year-over-year drop in a decade.