Retail sales stronger than expected in December

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Retail sales were up by 2.5 per cent to $69.6 billion in December, Statistics Canada said Friday, led by increases at food and beverage retailers as the Ottawa’s GST/HST holiday took effect.

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The month’s gains were well above the 1.6 per cent consensus expectation.

All nine subsectors had an increase in sales for the month. Along with food and beverage, motor vehicle and parts dealers had the largest gains.

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Excluding gasoline and fuel and motor vehicle and parts dealers, core retail sales were up 2.5 per cent. This followed a one per cent decrease in the previous month.

December’s increase was mainly due to 3.5 per cent higher sales in food and beverage, led by gains at supermarkets and other grocery retailers (except convenience stores). The retailers had a 3.9 per cent sales increase in December, compared to a two per cent decline in November.

“The GST/HST break introduced by the federal government on Dec. 15 seemingly played a big role in their shopping timeline,” said Desjardins senior economist Maëlle Boulais-Préseault in a note.

A chunk of the items qualifying for the tax break were in the food, beverage and restaurant sectors.

That subsector also benefitted from 3.9 per cent higher receipts at beer, wine and liquor retailers, and a 2.4 per cent increase at specialty food retailers.

In volume terms, retail sales increased 2.5 per cent in the last month of 2024.

While sales were up across all provinces in December, Quebec (3.6 per cent) and Ontario (two per cent) had the highest increase.

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Boulais-Préseault added that Statistics Canada’s numbers confirmed economists’ view that consumers waited until December to go ahead with their holiday purchases.

CIBC senior economist Andrew Grantham said in a note that even before accounting for the temporary boost from the GST holiday, consumer spending was clearly improving during the second half of 2024.

However, it appears the spending momentum may be slowing, as December’s tax holiday failed to build further into January, which marked a full month for the temporary tax break, said Grantham.

Because the nominal sales figures are calculated before tax, the figure should not be negatively affected by the tax reduction and, as a result, it’s likely that sales volumes also declined in January, he said.

Statcan’s advance estimates of retail sales suggest a 0.4 per cent headline decline in January, although that figure will be revised before its release next month, the agency said.

Some of January’s expected pullback might simply be due to colder-than-usual weather keeping shoppers at home, said Boulais-Préseault.

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Retail sales are likely to face further near-term challenges, with the tax break having likely expedited some purchases that would have occurred later, she added.

Grantham said monthly volatility shows evidence that consumer spending was improving before tariff uncertainty ramped up, albeit perhaps not as strongly as the December figure alone suggests.

Recent uncertainty may have resulted in households tightening the purse strings again, especially if there was concern regarding employment prospects, he said. CIBC expects consumer spending to slow in the first half of this year, before accelerating again in the second half and 2026 if a worst case tariff scenario is avoided.

• Email: dpaglinawan@postmedia.com

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