Retail sales in April unexpectedly declined 0.5% in the month which more than reversed the 0.4% increase recorded in March. Market expectations going into the report were for a modest 0.2% increase. Eliminating the impact of prices, the volume of sales activity dropped 0.8%. This followed a 0.3% gain in March though declines of 0.6% and 0.1% in February and January, respectively.
Weakness in April was relatively broadly based with eight of 11 subsectors recording nominal declines. The weakness was led by a 1.2% drop in the motor vehicle component. Sizable declines were also recorded clothing stores (2.8%), sporting goods stores (2.6%), electronic stores (1.6%) and furniture stores (1.6%). The main offset were increases in sales at health and personal care stores (1.9%) and gasoline stations (1.1%).
The 0.8% decline in the volume of retail sales in April is disappointing as it follows indications that manufacturing activity dropped 0.6% in the month. Some offset to these declines was provided by the report on Tuesday that the volume of wholesale trade rose a strong 1.3% in the month. Additional support to growth is expected from the reversal of some temporary weakness in the utilities and mining sector that has been evident in recent months.
Assuming a partially reversal of these earlier declines in April implies overall monthly GDP rising 0.2% which represents a modest improvement in growth relative to the 0.1% gain in March.
Overall annualized GDP growth in the first quarter of 1.9% came in below the Bank of Canada’s forecast of a 2.5% increase. A 0.2% gain in April GDP implies that though growth likely continued in Q2 that pace may once again undershoot the Bank of Canada’s Q2 growth forecast of a similar 2.5%. Indications of weaker than expected growth argue for the central bank to continue to keep monetary conditions highly accommodating.
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