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Market Wire
Canada Core Retail Sales Stay Soft in November

Adam Corbett January 24, 2020

Canadian retail sales rose 0.9% in November on a month-over-month basis, beating economists’ forecasts of 0.6%, but the increase was concentrated in motor vehicle and auto parts sales, as well as higher food and beverage sales.

November’s headline gain largely erases the 1.1% slump in October.

Surprisingly, the struggling loonie stayed put after the news, trading within a narrow range of few points upon release of the data.

The core reading, which removes auto sales, came in below expectations at 0.2% growth. The increase was broad-based, with six of 11 subsectors reporting higher sales across six different provinces.

The soft data today, from a core perspective, is consistent with weakness in other data series toward the end of the year. Bank of Canada Governor Stephen Poloz highlighted this on Wednesday in the press conference following the BOC’s decision to hold rates constant.

From a macro perspective, for a developed economy, consumer spending is the largest component to GDP growth, accounting for 56% of the Canadian economy. As a nominal value, aggregate retail sales were flat for the first nine months of 2019. Consumer spending overall took a nosedive in the fourth quarter, and traders are looking to the crucial holiday season to provide the relief the November numbers don’t seem to provide. 

The increase in auto sales can swing the pendulum either way. Durable goods purchases signal the consumer is comfortable spending money today on big ticket items, implying an optimistic outlook. On the flip side, these larger purchases are commonly funded by debt.

Additionally, Poloz mentioned Wednesday that e-commerce sales are not properly reflected in the retail numbers, providing a possible explanation as to why the needle didn’t move this morning.

Canada’s November GDP numbers are out next Friday, serving as the next possible catalyst for the now apparently rangebound loonie. With the door open to a rate cut, traders look to pinpoint the when, rather than the if.

Adam Corbett
Currency Analyst & Team Lead – Business Development

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