/Posthaste: Hold that rate cut, Canadian consumers are alive and well — or are they?

Posthaste: Hold that rate cut, Canadian consumers are alive and well — or are they?

Good Morning!

The Canadian consumer is in the spotlight this morning with the release of retail sales numbers.

One reason for the extra interest is the Bank of Canada’s statement Wednesday that it would be watching consumer spending “closely to see if the recent slowdown in growth is more persistent than forecast.”

So how did we fare?

Data out this morning beat expectations with sales rising the most in eight months in November, a 0.9% climb that followed a big drop in October.

That should reassure the Bank of Canada right? Not really, say economists.

While the headline number looks good, the data “did nothing to lift the fog of uncertainty surrounding the health of the Canadian consumer,” wrote CIBC economist Andrew Grantham.

Growth was driven largely by volatile auto sales with ex-auto sales showing only a 0.2% advance. “Other than autos, discretionary shopping was soft, with declines in such categories as clothing and general merchandise. Year-over-year sales are up 1.9% but that’s all from price increases, with sales flat in real terms,” said CIBC chief economist Avery Shenfeld.

“With other elements of discretionary spending largely weaker on the month, we still think there’s enough concern regarding the consumer outlook to warrant an interest rate cut by April, particularly if the unemployment rate starts to nudge higher,” said Grantham.

Robert Kavcic, BMO senior economist, had a similar take.

“Not a bad report considering some of the other soggy data flow. This doesn’t change much for our Q4 growth outlook, or for the Bank of Canada ….”

Here’s what you need to know this morning:

  • Prime Minister Justin Trudeau attends the Liberal caucus winter retreat
    The Conservative national caucus meets in Ottawa. Leader Andrew Scheer delivers remarks
  • Ontario Premier Doug Ford, Solicitor General Sylvia Jones, and Attorney General Doug Downey will make an announcement in Mississauga, Ont.
  • Activists rally before delivering a petition opposing Teck’s Frontier Mine in Alberta to B.C. Minister Jonathan Wilkinson in North Vancouver
  • Notable earnings: American Express
  • Today’s Data: Canadian retail sales

Apartment construction in Canada is the highest it’s been in decades, but the surge falls far short of what’s needed, says this week’s Haider-Moranis Bulletin.  Rental starts rose 25% in 2019 from the year before, and as the chart below shows, Montreal, which also has the biggest share of renter households, led the pack. Vancouver follows, with Toronto trailing way behind. Haider and Moranis say the modest uptick in Toronto purpose-built rental units isn’t even close to meeting demand in this market characterized by an ultra-low vacancy rate and rising rents. A recent RBC report estimated that renter households in Toronto will rise by 22,200 a year until 2023. To keep up with that demand, the city must add 26,800 apartments a year, the report estimates. Last year it added 5,000.


— Please send your news, comments and stories to [email protected]. — Pamela Heaven @pamheaven

With files from The Canadian Press, Thomson Reuters and Bloomberg

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