Canadian Retail Sales Post Surprise Drop, Falling Most in Year

(Bloomberg) -- 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% 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% gain. Excluding motor vehicles, retail sales dipped 0.5%, also missing the median forecast.

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

The report follows other indicators that have missed forecasts, including jobs and factory sales, potentially signaling 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.

The loonie depreciated on the report, falling 0.3% to C$1.3168 against its U.S. counterpart at 8:44 a.m. Toronto time. Two-year government bonds yielded 1.67%, down 3 basis points.

Key Insights

• 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
• The retail report is largely in line with results of a Nanos survey earlier this month that showed a deterioration in consumer confidence around personal finances, job security and economic outlook

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• 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 3% and used car dealers down 5.2%
• Retail sales fell 0.6% in October from a year prior, the largest year-over-year drop in a decade
• Sales at building material and garden equipment and supplies dealers fell 3.1% on the month, the fourth straight monthly decline
• Cannabis sales were a bright spot, gaining 4.9% in October and 5.4% in volume terms
• Retail e-commerce sales reached C$1.8 billion in October, accounting for 3.4% of total retail trade
• September’s print was revised upwards to flat from -0.1%

--With assistance from Erik Hertzberg.

To contact the reporter on this story: Shelly Hagan in Ottawa at shagan9@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier

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