United States retail sales fell more than expected in December, pulled down by declines in purchases of motor vehicles and a range of other goods, putting consumer spending and the overall economy on a weaker growth path heading into 2023.
Broad drops in sales reported by the US Department of Commerce on Wednesday, together with subsiding inflation, are likely to encourage the Federal Reserve to further scale back the pace of its interest rate increases next month. The US central bank is engaged in its fastest rate hiking cycle since the 1980s.
“Weak retail sales in December shows consumers are likely retrenching during a time of economic uncertainty,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “The trajectory for the US economy is weakening and recession risks are rising for 2023.”
Retail sales fell 1.1 percent last month. Data for November was revised to show sales dropping 1 percent instead of 0.6 percent as previously reported. It was the second straight monthly decline. Economists polled by Reuters had forecast sales decreasing 0.8 percent. Retail sales rose 6 percent year-on-year in December.
Retail sales are mostly goods and are not adjusted for inflation. December’s decline in sales was likely in part the result of goods prices falling during the month. Holiday shopping was also pulled forward into October as inflation-weary consumers took advantage of discounts offered by retailers.
Higher borrowing costs as the Federal Reserve battles inflation are also weighing on retail sales as goods tend to be financed on credit. Retail sales were also likely hurt by a cold snap in December as well as lower prices for gasoline or petrol, which impacted receipts at service stations.
In addition, spending is shifting back to services.
Sales at auto dealers fell 1.2 percent. Receipts at service stations tumbled 4.6 percent. Online retail sales dropped 1.1 percent. Furniture stores sales plummeted 2.5 percent. Receipts at food services and drinking places, the only services category in the retail sales report, fell 0.9 percent.
Electronics and appliance store sales declined 1.1 percent. Clothing store sales fell 0.3 percent. There were also decreases in receipts at general merchandise stores.
But sales at sporting goods, hobby, musical instrument and bookstores edged up 0.1 percent. Receipts at building material and garden equipment suppliers rose 0.3 percent.
The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25 percent – 4.5 percent range, the highest since late 2007. In December, it projected at least an additional 75 basis points of hikes in borrowing costs by the end of 2023.
Excluding automobiles, petrol, building materials and food services, retail sales fell 0.7 percent last month. Data for November was unrevised to show these so-called core retail sales sliding 0.2 percent as previously reported.
Core retail sales correspond most closely with the consumer spending component of gross domestic product. The weakness in core retail sales is likely to be offset by anticipated gains in services spending. Consumer spending continues to be underpinned by labour market tightness, which is keeping wages elevated.
High interest rates and a cold snap in December hurt retail sales [File: Rachel Wisniewski/Reuters]
Lower momentum
With inflation-adjusted consumer spending increasing 0.5 percent in October and being unchanged in November, economists believe growth in overall consumer spending in the fourth quarter would exceed the 2.3 percent annualized rate logged in the third quarter.
Gross domestic product growth estimates for the October-December quarter are as high as a 4.1 percent rate, also reflecting the sharpest contraction in the trade deficit in November since early 2009. The economy grew at a 3.2 percent rate in the third quarter.
Nevertheless, consumer spending and the overall economy are entering 2023 with less momentum. Savings are also dwindling.
Most economists expect the economy will slip into recession by the second half of the year, though there is cautious hope that moderating inflation could discourage the Fed from raising interest rates significantly higher. This would result in growth only slowing sharply rather than the economy contracting.
News on inflation continued to be encouraging. A separate report from the US Department of Labor on Wednesday showed the producer price index (PPI) for final demand decreased 0.5 percent in December after rising 0.2 percent in November.
In the 12 months through December, the PPI increased 6.2 percent after climbing 7.3 percent in November. Economists had forecast the PPI dipping 0.1 percent on the month and gaining 6.8 percent year-on-year.
The report came on the heels of reports last week that monthly consumer prices fell for the first time in more than 2 1/2 years in December.
A 1.6 percent decline in the prices of goods accounted for the drop in the PPI. Goods, which gained 0.1 percent in November, were pulled down by a 7.9 percent plunge in energy and a 1.2 percent drop in food prices.
Services prices edged up 0.1 percent after rising 0.2 percent in November.
Excluding the volatile food, energy and trade services components, producer prices gained 0.1 percent in December. The core PPI advanced 0.3 percent in November.
In the 12 months through December, the core PPI rose 4.6 percent after increasing 4.9 percent in November.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
