December retail sales plunge as autos slump

Mon Feb 23, 2009 10:24am EST
 
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By Louise Egan

OTTAWA (Reuters) - Canadian retail sales plunged in December, the biggest monthly drop in more than 17 years, as recession-wary consumers shunned big-ticket car purchases and cut back holiday shopping, suggesting the economy shrank more than expected in the fourth quarter.

Retail sales fell 5.4 percent in the month, Statistics Canada said on Monday, more than twice the amount forecast by analysts in a Reuters poll. It was the biggest drop since Statscan began using its current methodology in 1991.

Plummeting sales of new vehicles explained much of the downturn, but even excluding autos sales fell a steep 3.2 percent.

The dismal numbers, combined with other bad news from December, led economists to estimate that the economy shrank by more than 3 percent at an annualized rate in the final quarter of 2008. The Bank of Canada's latest estimate is for a 2.3 percent contraction.

"It seems that it didn't matter whether you were naughty or nice this Christmas, there were simply fewer presents under the tree," said Charmaine Buskas, senior economics strategist at TD Securities.

"The impact that today's data has for fourth-quarter GDP is pretty sizable," she said, estimating a decline of about 3 percent to 4 percent.

The deepening recession combined with weak inflation will pressure the Bank of Canada to cut its key overnight rate by another half point on March 3 to 0.50 percent, analysts said.

"This report, along with Friday's benign CPI, argues for even more aggressive action by the Bank of Canada," said Doug Porter, deputy chief economist at BMO Capital Markets.   Continued...