February 23, 2009 / 1:41 PM / in 9 years

December retail sales plunge as autos slump

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.

The Canadian dollar pared earlier gains after the retail data and at 10 a.m. was at C$1.2477 to the U.S. dollar, or 80.15 U.S. cents, up from Friday’s close of C$1.2493 to the U.S. dollar, or 80.04 U.S. cents.


Sales in the automotive sector -- which includes new and used vehicles and parts as well as gasoline stations -- plummeted 12.7 percent in the month. New vehicle dealers fared the worst, with their sales plunging 15.1 percent -- the biggest fall since January 1998. Gasoline sales slid 11.7 percent due to declining prices.

Excluding autos, retail sales fell 3.2 percent as holiday shoppers bought less of almost everything -- from clothing to electronics. Sales also fell sharply for building and outdoor home supplies retailers.

In overall volume terms, sales sank 4.1 percent, Statscan said.

“Our downsides to the outlook for the Canadian consumer are materializing at a faster than expected pace,” said Derek Holt and Karen Cordes, economists at Scotia Capital.

“The biggest hit to holiday sales on record is occurring in the context in which jobs, house prices, and financial portfolios are all sliding and doing so in the context of a financially tapped-out consumer,” they wrote in a report.

The last time sales plummeted by this much was in January 1991 when they fell 7.6 percent, but a Statscan official said that number was not considered reliable because the agency changed its methodology that month due to the introduction of a new goods and services sales tax.

Reporting by Louise Egan; Editing by Peter Galloway

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