Consumers look set to be the main drivers of Canada’s economic growth after a report on Friday showed retail sales continued to surpass expectations in November and climb for the fourth straight month.
The rise in household spending is outpacing that of business investment and offsetting weak exports to sustain economic growth, as predicted by the Bank of Canada this month.
But analysts predict the trend may not last as a weakening jobs market may eventually undermine consumer confidence.
“More recently, the unemployment rate has been edging up, measures of consumer confidence are weak and wage gains have not been keeping pace with inflation,” said Leslie Preston, economist at TD Economics.
“So, despite consumers’ festive holiday spending in Q4 2011, we don’t expect this pace to be sustained in 2012,” she wrote in a note to clients.
Retail sales climbed 0.3% in November from October, Statistics Canada said, a notch above market expectations and buoyed by purchases of video games, gasoline, vehicles and clothing. Compared with November 2010, sales grew 3.1%.
In volume terms, sales rose 0.5% on a monthly basis.
In the inaugural release of a new data series, Statscan also said the national job vacancy rate averaged 1.7% in the three months ended in September 2011, unchanged from the previous three-month moving average (June-August). The rate reflects the proportion of overall positions that were unfilled in the period.
But for every vacant job, there were 3.3 job hunters, on average. That ratio shot up to 10 unemployed workers for every vacancy in the education sector, by far the toughest market in the three-month period, and to 5.1 in the construction industry.
Canada recovered quickly from its mild 2008-09 recession and by January 2011 had recouped all the jobs lost. But this year it is expected to underperform the United States for the first time in seven years as it struggles with a mounting household debt problem.
The Bank of Canada predicted this month that household expenditures - a combination of consumer spending and housing investment - would grow at a faster pace through 2013 than it had previously anticipated. The momentum in household spending already seen in 2011 forced the bank to raise its fourth-quarter economic growth estimate to 2% from 0.8%.
Still, the economy stalled in October and is expected to show improvement in November, based on the retail data and signs of strength in manufacturing, said Paul Ferley, assistant chief economist at Royal Bank of Canada.
“To try and generate greater momentum in the economy, particularly in the face of ongoing financial market volatility related to concerns about European sovereign debt, the Bank of Canada is expected to keep monetary conditions highly accommodative,” he said.
The central bank lifted its key overnight target three times in mid-2010 to a still-low 1% but has kept the rate steady for an unprecedented 16 months since then as it waits out the European debt crisis.
Most economists expect it to resume tightening late this year or in 2013 while traders continue to price in a small chance of a rate cut.
In addition to a 0.8% gain in gasoline sales, video game sales contributed to the retail strength in November, when Activision Blizzard Inc’s “Call of Duty: Modern Warfare 3” saw a record launch with more than $400 million US in North America and UK sales.
General merchandise stores, auto and auto parts dealers, and clothing also showed strength. Stripping out the heavyweight auto sector, sales climbed 0.3%.
Seven of 11 subsectors reported higher sales, representing 65% of the total.
(Reporting By Louise Egan; editing by Rob Wilson)