Hopes for a quick economic turn-around got a cold shower Friday with a surprisingly big drop in April retail sales that reversed all of the gains tallied in the first three months of the year.
Retail sales plunged 0.8% in April to $33.5 billion, confounding economists who had expected a slight pick-up.
The decline was not only steep but also widespread, affecting most items and representing both a contraction in the volume and value of sales.
“Strength in retail sales have been the root of economic optimism for the first three months of 2009,” noted TD Bank economist Diana Petramala. But no more.
“With all factors considered, we expect that consumer spending will continue to be a drag on growth for most of 2009.”
The disappointing results add substance to Bank of Canada governor Mark Carney’s address Thursday warning that while so-called “green shoots” of growth are real, a quick recovery is far from a foregone conclusion.
Bank of Montreal economist Douglas Porter said the sales figures should not have come as a complete surprise, given rising unemployment and growing debt loads among Canadians.
Unlike most past recoveries, this time consumers may not be strong enough to do the heavy lifting needed to carry the economy out of the hole.
“A lot of people have been saying we can’t count on the American consumer to lead us out of this and to some extent that goes to the Canadian consumer as well,” he said.
“Households here face a lot of challenges as well, most notably a weak job market and high levels of debt.”
That suggests when the recovery does come, it will be modest and laboured and may have to depend on the export sector feeding into faster rebounding Asian markets, Porter said.
The April data found Canadians shying away from big ticket items, particularly autos and furniture, but most sectors were soft.
Statistics Canada said five of eight sectors fell, led by a 1.9% drop in the automotive sector.
A 1.8% decline in sales at new-car dealers reflects lower values of new motor vehicles sold, as unit sales were essentially unchanged from March.
Sales at used and recreational motor vehicle and parts dealers (down 2.4%) declined for the sixth straight month. Gasoline stations registered a 1.9% decrease in sales.
Food-and-beverage stores followed with a 1% decline.
The two sectors represent close to 60% of sales each month.
Retail sales in volume terms decreased 0.6%, offsetting an increase in March.
Regionally, retail sales were down in six provinces in April, with softness in Quebec (down 2.5%) and Ontario (down 1.1%) having the most impact.
Higher sales in British Columbia (up 1.3%) and Alberta (up 0.6%) offset some of the declines.
