Canadian and American Economic Weakness Remains as Retail Sales Slide

Canadian and American Retail Sales Lag

The Canadian and American economies continue to show signs they are slowing down. In addition to weak gross domestic product growth (GDP) in Canada and the U.S., consumer spending, a huge part of what actually fuels both economies, is stuttering—sparking fears of a recession. This is putting pressure on the Canadian dollar and suggests potential interest rates will remain on hold until the Canadian economy picks up. According to Statistics Canada, January retail sales unexpectedly fell 0.3%. This is the third consecutive month that retail sales have declined. Analysts were actually expecting January retail sales to increase by 0.3%.¹ Motor vehicle sales were a big part of that decline, falling 1.5%. Retail sales dipped -2.4% at general merchandise stores; the second consecutive month of declines. Sales at gas stations were down -0.4%. Overall, retail sales were down in seven provinces. The biggest hits came in Ontario and Alberta, both retreating -1.0%. Retail sales are an important economic indicator. That’s because consumer spending accounts for around 60% of Canada’s GDP. News of the decline sent the Canadian dollar down to an 11-day low of CDN$1.3428 to the U.S. dollar, or USD$0.7447. The same economic slowdown in consumer spending is also being felt in the U.S., the world’s biggest economy. Despite increased government spending and $1.5 trillion in tax cuts, U.S. retail sales fell 0.2% in February, catching Wall Street off guard. Core retail sales declined by 0.4%, a big drop from January’s 0.9% gain.² Americans cut back on buying furniture, clothing, food, and electronics and appliances, as well as gardening equipment and building materials. Analysts had expected retail sales to rise 0.3% in February. Even that was far short of the 2.2% gain in February 2018. Consumer spending is an even bigger economic driver south of the border, with roughly 70% of U.S. GDP coming from consumer spending. In addition to impacting the U.S. dollar, weak retail sales will also have a negative effect on Wall Street earnings. At the same time, bad economic indicators are a boon to safe haven investment like precious metals.

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1. Retail trade, January 2019, Statistics Canada, March 22, 2019; https://www150.statcan.gc.ca/n1/daily-quotidien/190322/dq190322b-eng.htm.
2. Advanced Monthly Sales For Retail And Food Services, February 2019, U.S. Census Bureau, April 1, 2019; Advanced Monthly Sales For Retail And Food Services, February 2019.

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