Mar 24, 2023
Rate Hikes Bite Into Canadian Retail and Manufacturing Sales
(Bloomberg) -- Canadian economic activity slowed down after a strong start to the year, with a flurry of preliminary data pointing to a pullback in February.
Statistics Canada released advance estimates on Friday for retail sales that showed receipts dropped 0.6% in February. Separately, the agency said wholesale activity fell 1.6% during the month, while factory sales were down 2.8%.
The data suggest growth may be starting to gear down as the Bank of Canada’s aggressive rate hikes weigh on business activity and the country’s heavily indebted households start cutting back on purchases. The February declines followed robust sales for manufacturers, wholesalers and retailers just a month earlier.
“We see today’s data as consistent with an economy that is set to decelerate later this year and should allow for Canadian central bankers to remain on pause,” Tiago Figueiredo, a macro strategist with Desjardins, said in a report to investors.
Canada’s economy is expected to stall this year as borrowing costs pinch consumption and business investment, but most data at the beginning of 2023 were stronger than expected. That raised questions about the timing of any impending slowdown, and whether the central bank would be forced to raise interest rates further.
In January, receipts for retailers rose 1.4%, double that of economist expectations in a Bloomberg survey, and led by higher sales at motor vehicle dealers and gas stations. Excluding autos and parts, retail sales increased 0.9%. In volume terms, sales jumped 1.5%.
Retail sales rose in seven out of nine subsectors, and were up in all provinces in January.
The statistics agency didn’t provide details for the February retail figures, but said wholesale decreases last month reflect lower sales for motor vehicles and parts, while manufacturing declines were led by motor vehicle, beverage, tobacco, primary metal, and food industries.
Earlier this week, the Bank of Canada said they saw clear signs that higher borrowing costs were “dampening demand” in the deliberations leading up to their March decision, where they held the overnight rate at 4.5%.
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