• Retail sales down 5.4%
  • Excluding autos, sales down a lesser 3.2%

With the global economy in the start of what could be the worst global recession since the great depression, continued large discounts at retail outlets were not enough to entice Canadian consumer spending in December. Retail sales were down for a third consecutive month, falling a whopping 5.4%, the largest decline since the series began in 1991. Stripping out decelerating prices, volumes were also down a massive a 4.1%. Fraying consumer confidence even had Canadians cutting back on their Christmas shopping lists, as they spent 6.4% less than December of 2007, representing by far, the largest annual decline on record.

Down for a seventh consecutive month, auto sales remained a soft spot for the Canadian retail sector in December, falling 12.7%, while excluding auto and gasoline sales, spending was down a more moderate but still hefty 1.8%. Outside of the automotive sector, consumers cut back spending on everything. However, a main source of weakness was a 5.6% decline in building and outdoor home supplies and a 5.2% drop at home furnishing stores as a deteriorating housing market has left less need for these goods for the last five months. The next major items that Canadians scaled back on were clothing and accessories, which fell a significant 3.4%. Two main sources of strength for retail activity over the last two months, sales at food and beverage stores and pharmacies, have now entered the negative column with 1.0% and 0.9% declines respectively.

On a regional basis, retail sales fell in all provinces in December, with New Brunswick and Manitoba performing better than the rest with a 3.2% decline in both provinces. It comes as no surprise that being the province hardest hit by the collapse in commodity prices, Alberta’s retail sales were down the most, falling 6.2%. Next in line is a 6.0% decline in Ontario, where a U.S. consumer led recession has had the greatest impact, eating away at demand for Ontario’s manufactured goods. All other provinces experienced losses within these ranges.

The weakness in retail spending over the last quarter of 2008, is a clear sign that the international headwinds have blown into the domestic economy, and knocked the wind out of the Canadian consumer. With Statistics Canada to release the fourth quarter GDP results next Monday, the retail sales data will likely translate into a 2.5% decline in consumer spending, putting significant downside risk to our economic growth estimate. The near future isn’t looking any brighter either, as fears of the worst global recession since the great depression and expected massive job losses will have consumers clinging onto their purses straight through to mid-2009. However, aggressive monetary policy, a stimulus package that should gain traction in mid-2009, as well as a gradual recovery in U.S. demand, will help the Canadian consumer get back on their feet in the latter part of the year.

TD Bank Financial Group

The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.